• Overview. IOI recorded a 91% increase in core PBT of RM343.5m in 4Q20 mainly due to higher contribution from plantation segment as margin increased to 47% from 20% in 4Q19 on higher ASP realised for CPO and PK, as well as FFB production. This also was aided by 51% increase in share of associate results of RM37.8m. On quarterly basis, the higher profit was due to higher profit contribution from both plantation and Resources-based Manufacturing (RBM) segments.
   
• Against estimates: Above. FY20 core profit was above at 110% of our full year estimates on account of higher contribution from plantation segment, although this was negated partly by the lower contribution from RBM segment. The higher profit contribution from plantation segment was due to higher ASP of CPO and improved OER.

• Dividend. The Board has declared a second interim dividend of 4.0sen bringing its total DPS to-date to 8.0sen (FY19: 8.0sen) per ordinary share – translating into DY of 1.8%, on current market price.

• Outlook. We believe RBM segment would continue to perform well despite potential margin squeeze on higher feedstock cost and subdued demand for refined palm products in the future. On the other hand, the plantation segment is expected to continue to sustain its performance given better PO price anticipated in the coming quarter. Nonetheless, management highlighted that FFB production in FY21 is expected to be flat or slightly lower due to aggressive replanting program carried out in Sabah, offsetting the increase in production from Indonesian estates and associate company, Bumitama Agri Ltd.

• Our call. Maintain HOLD with unchanged TP of RM4.80 based on average 5-yr low P/B of 3.1x (applying target BV/share of RM1.55).

Source: BIMB Securities Research - 25 Aug 2020