• Overview. IOI’s reported a 43% increase in core PBT of RM333.8m for 1Q21 vs. RM234.1m for 1Q20 on account of higher profit contribution from plantation segment as margin improved to 43.5% from 25.4% in 1Q20, although this was negated partly by the lower contribution from Resourcesbased Manufacturing (RBM) segment. On quarterly basis, the slightly low profit was a result of higher cost and lower profit contribution from RBM segments as well as lower contribution from share of profit from associate of RM35.1m vs. RM37.8m in 4Q20.

• Against estimates: Inline. 1Q21 core profit was within our estimates as lower contribution from RBM segment was mitigated by higher contribution from plantation segment. The higher profit contribution from plantation segment was due to higher ASP realised of CPO and PK on the back of higher FFB and CPO production (Table 3). Conversely, lower contribution in RBM segment is due to lower margin from the oleochemical and refining segments, aided by lower share of results from speciality fats associates, Bunge Loders on account of weaker performance from Asia that has impacted by Covid-19.

• Outlook. We believe RBM segment margins would continually be under pressure given higher feedstock cost and subdued demand for refined palm products. On the other hand, the plantation segment is expected to continue to sustain its performance given CPO price (local delivery) have risen to multiyear high of RM3,500/MT as of its last quote on Friday. 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 - 17 Nov 2020