IOI Corporation (Hold; TP: RM4.85) - Lack of Immediate Re-rating Catalyst

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD

Research House: HLG

Price Call: HOLD

Target Price: 4.85

IOI Corporation (Hold; TP: RM4.85)

Lack of Immediate Re-rating Catalyst

• Management is optimistic on CPO prices and feels there is still room forCPO price to go up further before peak production cycle comes in, backed byrelatively stable demand outlook and current supply constraint. Given itsoptimistic view on CPO price trend, management revealed that it only locked ina minimal amount of its projected output as forward sales.
• Despite facing higher fertilizer cost and potentially higher labourcosts (should the government implement minimum wage policy), managementhighlighted that this will unlikely affect its production cost significantlydue to prudent cost management.
• Profitability at the downstream segment will likely remain compressed inthe near term, due to the revision in tax structure for palm products by theIndonesian government that impairs the cost competitiveness of refineries in Malaysia.
• No intention to re-list its property division within the next twelvemonths. However, it doesn't discount the possibility of doing so over thelonger term, once its venture in Singapore property market bearsmeaningful fruits.
• Earnings forecasts and SOP-derived TP maintained at RM4.85. MaintainHold.

Source: HLIB Research - 9 April 2012