IOI Corp started off 1QFY22 with a strong core earnings growth of 85% YoY to RM466m after stripping out i) net foreign currency (FX) translation on foreign currency denominated borrowings and deposits (RM26.3m), ii) FX loss (RM31.5m), iii) fair value loss on other investments (RM5.6m), iv) fair value loss on derivative financial instruments (RM134.4m) and v) net gain arising from biological assets (RM21.6m). The results were in line with our full-year expectation but it surpassed the street expectation, making up 30% and 38% of full-year forecasts, respectively. No dividend was declared for the quarter. Maintain Neutral with an unchanged SOP-based TP of RM4.29.
- 1QFY22 revenue (QoQ: +5%, YoY: +46%). Group revenue surged 46% YoY to RM3.6bn on the back of stronger contribution from both plantation and resource-based manufacturing segments. Upstream plantation sales rose 12% YoY to RM93m, bolstered by stronger CPO prices despite weaker FFB production. Average CPO price recorded in 1QFY22 jumped from RM2,579/mt to RM4,032/mt while FFB production contracted by 15.1% YoY to 746,307mt, affected by the worker shortage issue and aggressive replanting activities. Resource-based manufacturing sales jumped 48% YoY to RM3.5bn, bolstered by higher contribution from oleochemical and refining segment.
- 1QFY22 core net profit surged 85% YoY to RM466m. The Group registered stronger core earnings of RM466m, bolstered by strong earnings contribution from both plantation (YoY: +83.3%) and resource based manufacturing (YoY: +73.2%). Plantation earnings surged to RM465.4m, bolstered by stronger CPO prices. The higher resource based earnings of RM155m were driven by higher contribution from oleochemical sub-segment despite weaker earnings contribution from its specialty fats associate, Bunge Loders Croklaan Group.
- Positive outlook. Management expects CPO prices to remain elevated until early 2022, supported by the global edible oil supply tightness. Meanwhile, CPO production is expected to be lower than initially anticipated due to the impact from adverse weather conditions arising from the La Nina phenomenon and labour shortage issue. On the downstream manufacturing segment, the hike in palm kernel prices coupled with persistent high freight costs pose a huge challenge to the oleo chemical business. Refinery business is expected to chalk positive margin after two straight profitable quarters. Lastly, its specialty fats sub segment, which is under its associate company, Bunge Loders Croklaan, is expected to perform better in FY22, supported by North American region and new product launches.
Source: PublicInvest Research - 25 Nov 2021