Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM4.30/share. Our fair value for IOI is based on an FY21F PE of 27x.

• IOI’s FY20 core net profit of RM808.8mil (ex-net forex loss of RM207.9mil) was within our forecast but 8.4% above consensus. IOI has declared a final gross DPS of 4 sen in 4QFY20, which brings total gross DPS to 8 sen for FY20. IOI’s FY20 gross DPS of 8 sen translates into a yield of 1.8%.

• IOI’s core net profit rose by 10.2% to RM808.8mil in FY20, underpinned by a 45.0% surge in plantation EBIT. The jump in plantation earnings compensated for a 30.4% fall in manufacturing (fair value changes, associates, refining and oleochemical) EBIT in FY20.

• IOI’s share of net profit in associates (Kao and Bunge Loders) declined by 22.1% in FY20 as Bunge Loders recorded a loss in 3Q. Bunge Loders was affected by mark-to-market losses on commodity derivatives in 3QFY20.

• The manufacturing division (including associates and fair value changes) was dragged by a decline in oleochemical and refining profit margins in FY20. Manufacturing EBIT margin slipped to 5.1% in FY20 from 7.7% in FY19.

• On a positive note, IOI’s plantation EBIT (including associates and fair value changes) expanded by 45.0% to RM701.5mil in FY20 on the back of higher palm product prices. The increase in CPO price helped compensate for lower CPO production in FY20.

• Average CPO price realised climbed by 14.3% to RM2,314/tonne in FY20 from RM2,025/tonne in FY19. On a negative note, average palm kernel price eased by 1.1% to RM1,375/tonne in FY20 from RM1,390/tonne in FY19. IOI’s FFB production slid by 8.9% in FY20.

• Comparing 4QFY20 against 3QFY20, IOI’s core net profit (ex-unrealised forex changes) inched up by 1.4% to RM239.7mil as plantation EBIT surged by 41.6%. However, manufacturing EBIT shrank by 16.4% QoQ to RM99.6mil in 4QFY20. Manufacturing EBIT margin was 5.0% in 4QFY20 vs. 6.1% in 3QFY20.

• Plantation earnings were supported by a 37.0% QoQ climb in FFB production in 4QFY20. This helped offset a 12.4% slide in CPO prices in 4QFY20. Average CPO price dropped to RM2,370/tonne in 4QFY20 from RM2,704/tonne in 3QFY20.

Source: AmInvest Research - 26 Aug 2020