Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM4.08/share, which is based on a FY24F PE of 18x - the 5-year average for large-cap planters. We ascribe a 3-star ESG rating to IOI.

• IOI’s FY23 core net profit (ex-unrealised net forex loss of RM174.5mil) of RM1.3bil was within our forecast but 13% below consensus. The group has declared a final gross DPS of 5 sen, which brings total gross DPS to 11 sen for FY23 (FY22: 14 sen). This implies a yield of 2.7%.

• IOI’s core net profit fell by 25.9% to RM1.3bil in FY23 due to a 44.8% plunge in plantation EBIT (inclusive of associates and fair value changes). On a positive note, manufacturing (refining and oleochemicals) EBIT grew by 28.6% to RM691mil in FY23.

• IOI’s plantation division was affected by weaker palm product prices and higher costs of wages and fertiliser. Average realised CPO price slid by 12.2% to RM4,118/tonne in FY23 from RM4,688/tonne in FY22. Average palm kernel price contracted to RM2,233/tonne in FY23 from RM3,593/tonne in FY22. FFB production eased by 1.5% in FY23.

• IOI’s manufacturing EBIT (inclusive of associates and fair value changes) benefited from the absence of asset impairments, higher selling prices and increased demand. EBIT margin expanded to 6.1% in FY23 from 3.6% in FY22.

• Comparing 4QFY23 against 3QFY23 however, IOI’s manufacturing EBIT retreated by 6.7% to RM47.4mil due to a 27.3% decline in turnover. The QoQ fall in manufacturing EBIT in 4QFY23 can be attributed to weaker sales volume and processing margins in the refining segment.

• Going forward, IOI expects its refining division to suffer from low or negative margins dragged by stiff competition from Indonesia. Also, the outlook for oleochemicals is subdued due to the weak global economic environment and rising geopolitical tensions that are undermining global trade.

• IOI is currently trading at a fair FY24F PE of 18x, which is in line with its 2-year average.

Source: AmInvest Research - 23 Aug 2023