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IOI Corp Bhd's (1961)second quarter profit surged 13 per cent compared to a year ago, thanks to stronger contribution from its plantation business.

IOI's net profit for the quarter to December 31 2010 was RM520.24 million. Group revenue rose to RM3.97 billion compared with RM3.06 billion before. In its filing to the stock exchange yesterday, IOI said it expects satisfactory performance for the rest of the fiscal year ending June 2011 on prospects of strong palm oil and palm kernel prices and a resilient property market.

Yesterday, its share price rose 13 sen to RM5.71. IOI shareholders' optimism is buoyed by the uptrend in palm oil prices as the current global shortage of vegetable oils is set to keep prices at higher levels. So far this year, crude palm oil (CPO) futures on the Malaysian derivatives exchange are averaging at around RM3,700 a tonne. Yesterday, the third-month benchmark palm oil contract closed at RM3,745 per tonne.

In its second quarter results, IOI's plantation operating profits rose 14 per cent to RM363.7 million from RM319.9 million a year ago. The rise in profits was mainly due to higher CPO and palm kernel prices. The group's average CPO price in the quarter was RM2,800 per tonne while palm kernel price was RM1,979 per tonne. During the quarter, IOI gained RM61 million when it sold off a portion of its investment properties.

Despite the higher profits achieved in refining activities, the resource-based manufacturing segment recorded lower profits mainly due to fair value losses on the adoption of FRS 139. During the quarter, the total fair value losses on derivative contracts recognised was RM73 million. Prior to adoption of FRS 139, derivative financial instruments were not recognised in financial statements. With the adoption of FRS 139, derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The resulting gain or loss from the remeasurement is recognised in profit or loss.

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