IOI Corp ended FY23 with core earnings of RM1.5bn after stripping out i) net foreign currency (FX) translation loss on FX denominated borrowing and deposits (RM174.5m), ii) FX loss (RM135.9m), iii) fair value loss on other investments (RM5.8m), iv) fair value loss on derivatives financial instruments (RM81.1m), v) net loss arising from changes in fair value of biological assets (RM17.6m) and vi) gain on disposal of 10% equity interest of an associate (RM17.2m). The results were in line with our and the street expectations, making up 96% and 104%, respectively. We maintain Neutral with an unchanged SOP-based TP of RM4.24. A second DPS of 5sen was declared for the quarter, bringing the cumulative dividend to 11sen (vs FY22: 14sen).

• 4QFY23 revenue (QoQ: -27%, YoY: -48%). Group revenue contracted 48% YoY to RM1.9bn, attributed to weaker sales from both plantation (- 36%) and resource-based manufacturing (-48%) segments. Average CPO price recorded in the 4QFY23 contracted from RM5,260/mt to RM3,906/mt (FY23: RM4,118/mt, YoY: -12%) while FFB production rose 1.2% YoY to 618,883mt (FY23: 2.68m mt, YoY: -1.5%). Resource-based manufacturing sales tumbled 48% YoY to RM1.9bn, weighed by lower sales volume from refining sub-segment.

• 4QFY23 core profit shrank 62% YoY to RM236m. The Group posted lower core earnings of RM236m, down 62% YoY, dragged by a sharp decline in both plantation and resource-based earnings. Plantation earnings tumbled 52% YoY to RM252m, attributed to higher production cost as palm kernel price saw a sharp decline. Meanwhile, resource based manufacturing earnings sank 82% YoY to RM35m, hampered by lower margins from oleochemical and refining sub-segments.

• Outlook guidance. Management expects to see CPO prices to remain in the range of RM3,500-RM4,000/mt until the end of Dec before moving higher as a result of potential risk of lower palm fruits production due to the impact of El Nino event. For FY24, the Group forecasts a moderate increase in FFB production on the back of higher productivity from its fully replenished new workers in Peninsular Malaysia and higher production from young estates in Indonesian plantations. Meanwhile, production cost is expected to be lower, underpinned by higher FFB yield and a decline in both fertilizer and diesel costs. On the resource-based manufacturing segment, it continues to see thin or negative refining margins for its refinery sub-segment, due to stiffer competition from Indonesian refiners, who benefit from the high CPO export duty. The outlook for oleochemical sub-segment is expected to remain subdued due to rising geopolitical tensions. On the positive side, it sees better demand from China and its new fatty acid and soap noodle plants will also help lower its production cost.

Source: PublicInvest Research - 23 Aug 2023