• Maintain BUY (TP: RM4.50). IOI Corporation (IOI)'s 1HFY24 core net profit of RM571.6mn (-39% YoY) was in line with our expectations but below consensus full-year forecasts at 52% and 44%, respectively. An interim DPS of 4.5sen was declared, accounting for a 44% payout (2H23: 6sen, payout of 42%), and we estimate a total FY24F DPS of 10sen, translating into a DY of 2.5%. IOI’s 2QFY24 core net profit fell by -28% YoY to RM288.7mn, mainly dragged down by a decline in the Resources-based Manufacturing (RBM) to RM53.5mn (-81% YoY), despite the Plantation segment remaining flattish at RM330mn (+1% YoY). This was mainly due to lower CPO and PK prices realised, lower margins from the oleochemical and refining sub-segments, as well as reduced sales volume from the refinery sub-segment. Nonetheless, we remain positive on IOI’s long-term prospects despite volatility in CPO prices and stiff competition from other edible oils, which may pose a challenge to its overall business. Its strategic positions in different segments of the palm oil value chain come with operational efficiency and hence, earnings resiliency. We maintain a BUY call with TP of RM4.50 (based on P/BV of 2.27x to BV/share of RM1.99).

• Key highlights. IOI registered a positive QoQ revenue and core profit growth of 9% and 2%, respectively. Both the Plantation and RBM segments revenue increased by 11% and 9% QoQ, respectively (refer to Table 2). This was achieved through improvements in FFB and CPO production, as well as other pertinent plantation statistics made possible by the availability of adequate labour, proper maintenance, and manuring. The higher production helped to moderate the slight drop in the average selling price (ASP) of CPO and PK.

• Earnings Revision. No changes in earnings forecast.

• Outlook. Moving forward, the current sluggish global economy is expected to result in fluctuation in CPO prices for 2024. Despite the dampened industry outlook, we are encouraged by the strong performance in production, which could improve earnings moving forward. Additionally, we believe that its diversified earnings base and improvements in downstream operations could help mitigate CPO price volatility.

Source: BIMB Securities Research - 26 Feb 2024