IOI Corporation (Hold; TP: RM4.85)
Lack of Immediate Re-rating Catalyst
- Management is optimistic on CPO prices and feels there is still room for CPO price to go up further before peak production cycle comes in, backed by relatively stable demand outlook and current supply constraint. Given its optimistic view on CPO price trend, management revealed that it only locked in a minimal amount of its projected output as forward sales.
- Despite facing higher fertilizer cost and potentially higher labour costs (should the government implement minimum wage policy), management highlighted that this will unlikely affect its production cost significantly due to prudent cost management.
- Profitability at the downstream segment will likely remain compressed in the near term, due to the revision in tax structure for palm products by the Indonesian government that impairs the cost competitiveness of refineries in Malaysia.
- No intention to re-list its property division within the next twelve months. However, it doesn’t discount the possibility of doing so over the longer term, once its venture in Singapore property market bears meaningful fruits.
- Earnings forecasts and SOP-derived TP maintained at RM4.85. Maintain Hold.
Source: HLIB Research - 9 April 2012
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