IOI Corp’s 2Q earnings higher due to rally in CPO price


IOI Corp Bhd’s earnings rose by 9.2% year-on-year (YoY) to RM213.5 million for its second quarter ended Dec 31, 2019 (2Q19), as its plantations division posted a higher profit due to the rally in crude palm oil (CPO) price late last year.

The integrated planter’s revenue for the quarter stood at RM1.96 billion, 4% higher YoY, while earnings per share rose 9.3% to 3.4 sen from 3.11 sen in 2Q18.

IOI’s plantation division posted a 49% YoY rise in profit to RM175.3 million due to higher CPO price realised, its exchange filing yesterday noted.

The average CPO price realised in 2Q was RM2,246 per tonne compared to RM1,932 tonne in the corresponding period a year ago.

Profit for its resource-based manufacturing business slumped 79% YoY to RM29.9 million due to losses incurred on derivative financial instruments.

“Excluding the fair value loss or gain on derivative financial instruments, the underlying profit for the resource-based manufacturing segment reported a profit of RM122.9 million for 2Q compared to RM121.5 million a year ago.

“The marginally higher underlying profit is mainly due to higher share of associate results from Bunge Loders Croklaan Group BV, offset by lower operational contributions from the oleochemical and refining subsegments,” it said.

The group declared a first interim dividend of four sen per ordinary share, to be paid on March 4, 2020.

IOI said it expects the palm oil price to be volatile this year amid market uncertainty created by the Covid-19 outbreak, while the low inventory levels would spur demand in April and May 2020.

CPO price moved up strongly in the beginning of November 2019 and exceeded RM3,100 per tonne in early January 2020. However, in mid-January 2020, the price of the edible oil started to take a downward turn.

“In addition to the restrictive import policies imposed by the Indian government on Malaysian refined palm oil, CPO price has also been adversely affected by the Covid-19 outbreak in China which is expected to reduce the demand for vegetable oil and disrupt supply flows,” IOI stated.

Fresh fruit bunches production (FFB) at its plantation segment is expected to gradually recover from the low seasonal production cycle in the previous quarter.

“We expect the plantation segment to perform better in 2Q20, in line with the relatively stronger palm oil price earlier this year,” it said.

IOI’s resource-based manufacturing segment’s operating environment is expected to be challenging due to Covid-19 which has been affecting global trade and economy.

The higher and more volatile CPO price has also affected the demand and margin for palm oil products. “We expect the performance of our resource-based manufacturing segment, which includes our oleochemical business and specialty fats associate company, to be satisfactory with our strong reputation in the global marketplace,” it said.

Foreign-exchange (forex) volatility caused by the slowing of economic activity is expected to have an impact on IOI’s medium- to long-term dollar-denominated borrowings.

“The dollar-ringgit exchange rate, which affects the forex translation gain or loss arising from our medium- to long-term dollar-denominated borrowings, are expected to be volatile with the global economic uncertainty caused by the coronavirus outbreak.

“Overall, the group anticipates its operating performance for the remaining financial year 2020 to be satisfactory amid the challenging global economic environment,” it said.