• Overview. IOI recorded a 37% increase in core profit of RM375.2m in 2Q21 on the back of 26% increase in revenue of RM2.45bn as higher contribution from the plantation segment has partially offsetting the lower contribution from Resources-based Manufacturing (RBM) segment. This also was aided by 38% increase in share of profit from associate of RM85.7m. On quarterly basis, 12% increase in core profit was a result of higher profit contribution from plantation segment on account of higher CPO and PK prices realised of RM2,992/MT and RM1,982/MT respectively against RM2,579/MT and RM1,486/MT in 1Q21. Higher profit contribution from refining sub-segment on higher margins as well as higher share of results from speciality fats associate, Loders also aided to the improved results.

• Against estimates: inline. 1H21 core PBT was in line at 54% of our full year estimates as lower contribution from RBM segment was mitigated by higher contribution from plantation segment. Plantation’s margin improved to 49% from 32% in 1H20 on account of higher CPO and PK price realized as well as higher share of associate results.

• Dividend. The Board has declared an interim dividend of 4.5sen per share (1H20: 4.0sen) for FYE June 2021, to be payable on 19 March 2021. Based on current market price, this translates into DY of 1.06%.

• Outlook. Although volatility remains present, we are positive on IOI’s longterm earnings growth prospect. We believe RBM segment would continue to perform well despite potential margin squeeze on higher feedstock cost. Conversely, plantation segment would continue to sustain its performance given better PO price anticipated on the back of higher CPO prices currently.

• Our call: BUY. As IOI’s share price has fallen by 8% YTD, we now see potential upside from here in the stock with upside of 13%. Upgrade to BUY 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 - 24 Feb 2021