IOI Corp ended FY21 with an impressive earnings growth of 84% YoY to RM1.4bn, buoyed by both plantation and resource-based manufacturing segments. The sterling results made up 118% and 111% of ours and the street expectations, respectively. A final DPS of 6sen was declared for the quarter, bringing the full-year DPS to 10.5sen (vs FY20: 8sen). Nevertheless, we make no changes to our FY22-24 earnings forecasts as we expect to see weaker resource-based manufacturing earnings, dragged by more competitive refining and oleochemical margins as well as slower demand. Maintain Neutral with an unchanged SOP-based TP of RM4.41.

• 4QFY21 revenue (QoQ: +21%, YoY: +70%). Group revenue surged 70% YoY to RM3.4bn on the back of stronger contribution from both plantation and resource-based manufacturing segments. Upstream plantation sales jumped 60% YoY to RM93m, bolstered by stronger CPO prices despite weaker FFB production. Average CPO price recorded in 4QFY21 jumped from RM2,370/mt to RM3,648/mt (FY21: RM3,076/mt, +33% YoY). Meanwhile, FFB production contracted by 16% YoY to 727,653 mt (FY21: 2.91m mt, -5.8% YoY), affected by the worker shortage issue and aggressive replanting activities. Resource-based manufacturing sales gained 70.1% YoY to RM3.3bn, led by higher contribution from the oleochemical sub-segment.

• 4QFY21 core net profit doubled to RM373m. The Group registered stronger core earnings of RM373m, bolstered by stronger earnings contribution from both plantation (YoY: +70.5%) and resource-based manufacturing (YoY: +8%). The higher resource-based earnings were lifted by higher contribution from oleochemical sub-segment and higher share of profit from its specialty fats associate from Loders, but partially offset by weaker refining earnings.

• Mixed outlook. Management expects its overall financial performance for FY22 to be better than the previous financial year, led by the strong performance from its plantation segment. FFB production is expected to remain steady in FY22 on the back of higher production from young palm trees in Indonesian plantations, partially offset by the loss of production from its accelerated replanting programme in Sabah. It has also accelerated its mechanism programme in various field operations to ease the worker shortage challenge in its estates. On the other hand, despite the competitive palm refining margin, it expects its refining sub-segment to perform satisfactorily in FY22 with an efficient cost structure and varied product portfolio in its Sandakan refinery complex. As for the oleochemical sub-segment, the stronger-than-expected CPO price should pressure its product margin, although the price of palm kernel oil, the main raw material, has not increased as much as the price of palm stearin. The new fatty acid and soap noodle plants will come on stream in 2HFY22.

Source: PublicInvest Research - 25 Aug 2021