IOI Corp’s 2Q profit tumbles 67% on weaker CPO prices

It expects to sustain its business performance in the remaining quarters of FY19


IOI Corp Bhd’s net profit for the second quarter ended Dec 31, 2018 (2QFY19) tumbled 67.19% year-on-year (YoY) to RM195.5 million or 3.11 sen earning per share (EPS) due to lower operating profit and foreign currency translation loss on foreign currency-denominated borrowings and deposits.

The integrated edible oils group profit from its upstream plantation segment fell 66% YoY to RM117.3 million in the three months due to lower crude palm oil (CPO) and palm kernel (PK) prices.

CPO average price realised in the quarter was RM1,932/metric tonne (MT) compared to RM2,644/MT in 2QFY18, while the average PK price realised was RM1,444/MT compared to RM2,621/MT in last year’s corresponding quarter, the company noted in its exchange filing yesterday.

Its resource-based manufacturing segment’s profit of RM139.3 million for the quarter was higher than the RM128.3 million profit reported in 2QFY18.

Excluding the fair value gain on derivative financial instruments, the RM121.5 million underlying profit for the segment in 2QFY19 was 95% higher than the profit of RM62.2 million a year ago, it stated.

The higher profit was mainly due to higher sales volume and margins from the oleochemical and refining sub-segments, as well as share of results of its associate Bunge Loders Croklaan Group BV, which was taken up as discontinued operations in the quarter prior to the completion of divestment of Loders.

IOI’s revenue for the quarter decreased 6.47% YoY to RM1.88 billion.

For the cumulative six-month period, net profit plunged 64.5% YoY to RM339.3 million or 5.4 sen EPS, while revenue eased 3.09% YoY to RM3.76 billion.

The board has declared a first interim dividend of 3.5 sen, payable on March 22, 2019.

The group expects to sustain its business performance in the remaining quarters of FY19.

The CPO price has improved from three-year lows in November 2018 to RM2,200-RM2,300/MT range now, and is expected to sustain at current levels as industry stock levels are forecast to decline to below three million MT.

“For our plantation segment, fresh fruit bunches production is expected to decline in 3QFY19, in line with the seasonal trend and after the substantial increase in 2QFY19. We foresee a slight improvement in financial performance from the plantation segment during 3QFY19,” IOI noted.

The group expects its oleochemical sub-segment to continue to perform well in the coming quarters as prices of PK oil have not increased in line with the gain in palm oil price, in addition to the consistent demand for fatty acids and fatty esters.

Its 30%-owned unit Bunge Loders Croklaan is expected to perform well with higher sales volume in the confectionery and nutrition categories, coupled with synergies arising from the integration of the company into the Bunge edible oils organisation, which will accordingly benefit its resource-based manufacturing segment.

IOI closed five sen or 1.07% higher at RM4.73 yesterday, giving it a market capitalisation of RM28.88 billion.