Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM4.30/share. Our fair value for IOI is now based on a FY22F PE of 27x.
   
• We forecast IOI’s plantation EBIT to increase by 37.4% to RM850.0mil in FY21F on the back of higher CPO price. We have assumed an average CPO price of RM2,500/tonne in FY21F compared with RM2,314/tonne achieved in FY20.
   
• We think that IOI’s FFB production would be flat in FY21F (FY20: -8.9%). We do not expect a growth in FFB output as IOI is envisaged to replant about 12,000ha of ageing oil palm trees in FY21F compared with 10,000ha in FY20.
   
• The replanting is expected to offset enhancements in FFB yields in FY21F. We believe that IOI’s FFB yield would recover in FY21F after being hit by the lagged impact of 3Q2019’s haze and drought. We have assumed an average FFB yield of 22.0 tonnes/ha in FY21F vs. 21.2 tonnes/ha in FY20.
   
• We believe that IOI would continue to be on the lookout for investment opportunities in the coming six months. The group has not carried out a major acquisition since the RM1.0bil takeover of Unico-Desa Plantations in 2013 and RM433mil acquisition of Cremer Oleo GmBH in 2015.
   
• The deadline for the utilisation of the RM925.0mil proceeds from the disposal of Loders Croklaan is 3Q2021. If the group is unable to find investment opportunities at the right pricing by 3Q2021, we think that IOI may use the cash to repay borrowings or pay additional dividends.
   
• Assuming half of the RM925.0mil are used to pay dividends, these would translate into additional dividends of 7.0 sen.
   
• IOI is flushed with cash. We forecast the group’s gross cash to be RM2.4bil as at end-June 2021. We estimate net gearing to be 26.5% as at end-FY21F vs. 28.1% as at endFY20.

Source: AmInvest Research - 26 Jan 2021