KUALA LUMPUR: HLIB Research issued a hold call on IOI Corporation Bhd with a target price of RM4.69 as the house held that the company's cancellation of 178 million treasury shares will not have an impact on IOI's overall earnings outlook.
Additionally, HLIB Research said that it has already excluded treasury shares in its SOP valuation.
"We are positive on the latest development, as it boosts EPS (by circa 2.8 per cent) and valuation of the stock," the firm said in its newsbreak report today.
However, on the risk side, HLIB Research highlighted that of concern are the sharp fall in fresh fruit bunch (FFB) output and palm product prices, alongside escalating crude palm oil production costs; and weaker-than-expected recovery in edible oil demand and prices.
"While we like IOI for its efficient plantation management (evidenced by its superior FFB yield vis-à-vis the industry average), healthy balance sheet (net gearing of 0.66x as at FY16) and strong operating cash flow generation (RM1.63 billion or 26 sen/share in FY16), further upside is capped by its lofty valuation (FY17-18 P/E of 23.2x and 21.4x respectively)," it wrote.