Investment Highlights

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

• Here are the key takeaways from IOI’s virtual briefing yesterday: -

• IOI is hopeful of achieving a fresh fruit bunch (FFB) production growth of 12% in FY24F (FY23: -1.5%). FFB output in Indonesia is envisaged to rise by 20% while in Malaysia, FFB production is estimated to expand by 11%. The improvement in FY24F FFB output is expected to be underpinned by a higher number of workers.

• There are no signs of El Nino yet at IOI’s estates in Malaysia. Although the weather has become drier in Sabah, rainfall is still sufficient. In any case, an El Nino will only affect FFB production, 6-12 months later. IOI reckons that its FFB production will peak in November this year instead of the usual September or October.

• IOI’s all-in cost of CPO production is expected to be RM2,200/tonne in FY24F compared to RM2,500/tonne in FY23. The decline in the cost of production is due to a higher volume of CPO production and lower fertiliser costs. Fertiliser costs are anticipated to be 40% YoY lower in FY24F.

• The outlook for refining and oleochemical divisions is unexciting. Refining margins are expected to be compressed due to competition from Indonesia. Indonesia started exporting aggressively after the DMO (domestic rules obligation) guidelines were relaxed after Hari Raya. IOI’s refineries are presently operating at an average utilisation rate of 60%.

• EBIT margin for the oleochemical division is low as selling prices are depressed amid poor demand. We understand that selling prices of glycerine, a by-product of fatty acids, are below the prices of the raw material currently. IOI’s oleochemical plants are presently operating at an average utilisation rate of 70%.

• IOI is anticipated to replant about 10,000ha-11,000ha of ageing oil palm trees in FY24F compared with 9,000ha in FY23. Replanting cost until maturity is estimated to be RM20,000/ha.

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

Source: AmInvest Research - 24 Aug 2023