IOI Corp saw its 1HFY22 core earnings climbing 70% YoY to RM926m after stripping out i) net foreign currency (FX) translation on foreign currency denominated borrowings and deposits (RM3.4m), ii) FX loss (RM18.7m), iii) fair value gain on other investments (RM5.3m), iv) fair value loss on derivative financial instruments (RM70.8m), v) net gain arising from biological assets (RM10m) and vi) loss on repurchase of Guarantee Notes due 2022. The results were in line with our full-year expectation but surpassing the street estimates, making up 49% and 69% respectively. A first interim DPS of 6sen was declared for the quarter. Maintain Neutral with an unchanged SOP-based TP of RM4.67.

• 2QFY22 revenue (QoQ: +13.2%, YoY: +67.5%). Group revenue surged 68% YoY to RM4.1bn on the back of stronger contribution from both plantation and resource-based manufacturing segments. Upstream plantation sales rose 18% YoY to RM113m, bolstered by stronger CPO prices and a slight increase in FFB production. Average CPO price recorded in 2QFY22 jumped from RM2,992/mt to RM4,565/mt while FFB rose 1.1% YoY to 769,145 mt. Resource-based manufacturing sales jumped 70% YoY to RM3.9bn, bolstered by higher contribution from oleochemical sales.

• 2QFY22 core net profit surged 62% YoY to RM473m. The Group registered stronger core earnings of RM473m, pushed by stronger plantation earnings, partially offset by weaker downstream manufacturing earnings. Plantation earnings surged 67% YoY to RM587m, bolstered by stronger CPO prices. The lower resource-based earnings of RM98m, down 12% YoY, was mainly attributed to weaker earnings from refining sub-segment and share of Loder’s impairment loss of RM55.3m, partially cushioned by higher oleochemical earnings.

• Outlook guidance. Management expects CPO prices to remain elevated until at least mid of this year, supported by the global edible oil supply tightness as well as a pick-up when economy reopens following a period of lockdown due to the pandemic. The palm refining and kernel crushing margins in Malaysia continue to be affected by the high CPO and palm kernel prices as well as export duty regulations in Indonesia. Meanwhile, the oleochemical margin is expected to be affected by the sharp rise in palm kernel oil feedstock price since Dec 2021.

Source: PublicInvest Research - 24 Feb 2022