Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM3.90/share, based on a FY24F PE of 18x, which is the 5-year mean for big cap planters. We ascribe a 3 star ESG rating to IOI.
   
• We Attended IOI’s Analyst Briefing Recently. Here Are the Key Takeaways From the Briefing:-
   
  • FFB production is expected to be flat at 2.7mil tonnes in FY23E due to a few reasons. Firstly, although IOI has been receiving additional foreign workers, it takes about 3 months to train the workers. In addition, a few of the group’s oil palm estates in Johor and Sabah have been affected by floods.
     
  • Second, IOI will be replanting 8,000ha of ageing oil palm trees in FY23E (FY22: minimal). This is 5% of the group’s planted areas. In FY24F, the size of replanting is estimated to increase to 10,000ha. Replanting cost is envisaged to be RM20,000/ha.
     
  • CPO production cost is expected to increase by 20% to RM2,500/tonne in FY23E. Although diesel prices have dropped, costs of wages and fertiliser are still high.
     
  • Operating conditions for the oleochemical division have become challenging. Production costs of the oleochemical unit have climbed by 60% since January 2023 partly due to a 26% rise in electricity tariffs. The oleochemical division will be passing on some of the increase in electricity tariffs to its customers.
     
  • Also, we understand that demand for oleochemical products has softened due to global economic uncertainties. In addition, customers have high inventories, and as such, they are not re-stocking.
     
  • IOI is hopeful that its refining margin will swing into the black on the back of improving demand. Demand is expected to rise overthe coming months supported by Indonesia’s temporary export restrictions and the Ramadan period.
     
  • Refining margins have been negative since late last year as Indonesia re-imposed the CPO export levy in November 2022. This resulted in lowerfeedstock costs for the country’s palm refiners and placed Malaysian refiners at a disadvantage.

• IOI Is Currently Trading at a FY24F PE of 18x, Which Is in Line With Its 2-year Average.

Source: AmInvest Research - 6 Mar 2023