IOI Corp kick started 1QFY24 with core earnings of RM299m after stripping out i) net foreign currency (FX) translation gain on foreign current denominated borrowings and deposits (RM5.8m), ii) net fair value gain on derivative financial instrument (RM1.1m) and minority interests. The weaker results were below our full-year expectation but was in line with the market expectation, making up 18% and 21%, respectively. We revised down our FY24-26F earnings forecast by 9-10% to reflect the challenging outlook for resource-based manufacturing segment. Maintain Neutral with a new SOP-based TP of RM4.15 after rolling our valuations to FY25F. No dividend was declared for the quarter.

• 1QFY24 revenue (QoQ: +13%, YoY: -40%). Group revenue retreated 40% YoY to RM2.2bn, mainly attributed to weaker resource-based manufacturing (-42%) segment. 1QFY24 Average CPO price stood at RM3,789/mt, down 15.7% YoY, while FFB production rose % YoY to mt. Resource-based manufacturing sales tumbled 10.3% YoY to RM734,062bn, weighed by lower sales volume from refining subsegment.

• 1QFY24 core profit shrank 41% YoY to RM299m. The Group posted lower core earnings of RM299m, down 41% YoY, dragged by a sharp decline in both plantation and resource-based earnings. Plantation earnings dropped 12.7% YoY to RM314.5m, attributed to higher production cost as palm kernel price fell from RM2,524/mt to RM2,100/mt. Meanwhile, resource-based manufacturing earnings sank 82.5% YoY to RM56.4m, hampered by lower margins from oleochemical and refining sub-segments.

• Mixed outlook. Management expects to see CPO prices to remain in the range of RM3,750/mt to RM4,050/mt in the next 2 months before moving higher as the anticipated monsoon rains in Malaysia may disrupt harvesting activities and cause a drop in palm oil stock over the 1Q 2024. Meanwhile, production cost is expected to be lower due to the higher FFB yield and decline in fertilizer and diesel costs. 
  On the other hand, refinery and commodity marketing sub-segment are expected to suffer from the current low or negative refining margins due to stiff competition from Indonesian refiners, who benefitted from the country’s CPO export duty policy. The outlook for oleochemical subsegment is expected to remain subdued due to the weak global economic environment. Its new fatty acid and soap noodle plants have reduced its production cost and give the flexibility to tailor its products to meet customer requirements.

Source: PublicInvest Research - 29 Nov 2023