Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM4.05/share. Our fair value for IOI is based on a FY23F PE of 22x. We attach a 3-star ESG rating to IOI.

• IOI’s 9MFY22 core net profit (ex-unrealised forex gains of RM49.8mil) was slightly above our forecast but within consensus estimates. We raise IOI’s FY22F net profit by 3.1% to account for a higher CPO price of RM4,500/tonne vs. RM4,000/tonne previously.

• IOI’s core net profit increased by 28.9% YoY to RM1.1bil in 9MFY22 on the back of strong palm product prices. On a negative note, IOI’s manufacturing EBIT (refining and oleochemicals) showed signs of QoQ margin erosion in 3QFY22.

• Manufacturing EBIT (excluding associates and fair value changes) shrank by 50.5% QoQ to RM63.8mil in 3QFY22. Manufacturing EBIT margin was 1.6% in 3QFY22 vs. 3.2% in 2QFY22. The squeeze in EBIT margin was attributed to weaker sales volume and refining margin.

• Comparing 9MFY22 against 9MFY21, IOI’s manufacturing EBIT (including associates and fair value changes) declined to RM244.7mil from RM503mil. Recall that Bunge Loders recorded a gain on the disposal of a palm refinery of RM267.9mil in 9MFY21. Also, Bunge Loders registered an asset impairment of RM55.3mil in 9MFY22.

• On a positive note, the manufacturing division recorded smaller fair value losses of RM71.6mil on derivatives in 9MFY22 compared to RM97mil in 9MFY21.

• IOIs plantation EBIT (excluding associates and fair value changes) surged to RM1.3bil in 9MFY22 from RM701mil in 9MFY21. Average CPO price jumped by 56.4% to RM4,518/tonne in 9MFY22 from RM2,888/tonne in 9MFY21. IOI’s FFB production edged down by 3.4% YoY in 9MFY22 due to labour shortage and unfavourable weather conditions.

• Going forward, IOI said that palm refining and fractionation margins have turned positive due to the high CPO export duty and good demand for palm oil. In addition, Bunge Loders’ performance is expected to be satisfactory in 4QFY22 as it benefits from favourable demand. Challenges include high energy costs and Covid-19 lockdowns in parts of China.

Source: AmInvest Research - 23 May 2022