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3QFY10: slightly below expectations
Offsetting moving parts. 3Q recurring net profit of RM318m (-22% QoQ, +18% YoY) brings 9MFY10 pre-ex net profit to RM1,128m (-20% YoY), 68% of our previous FY10 forecast. Weaker plantations earnings were partly mitigated by stronger than expected property earnings. We lower FY10 EPS by 5% to reflect latest operating trends. With valuations still stretched, and CPO price potentially trending down, we remain sellers of IOI.
Weaker plantations due to lower than expected production. 3Q plantation EBIT was down 12% QoQ and 1% YoY. While 3Q is seasonally a weaker quarter for production, a 2% YoY decline in FFB production suggests that the adverse weather conditions were particularly severe this year. The impact on revenue was partly offset by higher selling prices (RM2,480/t against RM2,225/t in 2Q).
Strong showing from property; manufacturing in line. 3Q property EBIT was down 1% QoQ and 106% YoY. Property earnings have doubled YTD due to strong development billings (over RM200m a quarter) and margin expansion. 3Q manufacturing EBIT was down 12% QoQ and up 17% YoY. On a QoQ basis, stronger revenue was offset by weaker margins, likely due to a stronger ringgit.
Lowering FY10 earnings by 5%. The revision reflects 1) lower plantations EBIT on weaker production (we assume a recovery in 4Q yield) and, 2) higher property development EBIT as YTD property sales have been stronger than expected. We make minor revisions to our FY11-12 earnings forecasts. Our CPO forecast of RM2,400/t remains unchanged.
Maintain Sell. Our target price of RM4.70 remains unchanged and is based on 17x FY11 EPS. Our CPO forecast of RM2,400/t implies spot prices trend down.
Offsetting moving parts. 3Q recurring net profit of RM318m (-22% QoQ, +18% YoY) brings 9MFY10 pre-ex net profit to RM1,128m (-20% YoY), 68% of our previous FY10 forecast. Weaker plantations earnings were partly mitigated by stronger than expected property earnings. We lower FY10 EPS by 5% to reflect latest operating trends. With valuations still stretched, and CPO price potentially trending down, we remain sellers of IOI.
Weaker plantations due to lower than expected production. 3Q plantation EBIT was down 12% QoQ and 1% YoY. While 3Q is seasonally a weaker quarter for production, a 2% YoY decline in FFB production suggests that the adverse weather conditions were particularly severe this year. The impact on revenue was partly offset by higher selling prices (RM2,480/t against RM2,225/t in 2Q).
Strong showing from property; manufacturing in line. 3Q property EBIT was down 1% QoQ and 106% YoY. Property earnings have doubled YTD due to strong development billings (over RM200m a quarter) and margin expansion. 3Q manufacturing EBIT was down 12% QoQ and up 17% YoY. On a QoQ basis, stronger revenue was offset by weaker margins, likely due to a stronger ringgit.
Lowering FY10 earnings by 5%. The revision reflects 1) lower plantations EBIT on weaker production (we assume a recovery in 4Q yield) and, 2) higher property development EBIT as YTD property sales have been stronger than expected. We make minor revisions to our FY11-12 earnings forecasts. Our CPO forecast of RM2,400/t remains unchanged.
Maintain Sell. Our target price of RM4.70 remains unchanged and is based on 17x FY11 EPS. Our CPO forecast of RM2,400/t implies spot prices trend down.
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