Overview. IOI recorded an 83% increase in core PBT of RM617.4m in 1QFY22 mainly due to higher contribution from both plantation and Resource-based Manufacturing (RBM) segments as 1) plantation’s margin increased to 61.2% from 43.5% in 1QFY21 on higher ASP realised for CPO and PK, offsetting the lower FFB and CPO production recorded during the period, and 2) RBM’s margins increased to 4.4% from 3.7% in 1QFY21 on improvement in margins from both oleochemical and refining sub-segments, partly negated the lower share of results from speciality fats associate, Bunge Loders. This also was aided by 101% increase in share of profit from associates with a share of profit of RM70.4m as oppose to RM35.1m in 1QFY21. On quarterly basis, 23% higher in core PBT was due to 1) 14% higher in plantation segment profit of RM465.4m against RM406.9m in 4QFY21 mainly due to higher ASP realised of CPO and higher FFB and CPO production during the period, 2) higher RBM segment profit of RM154.8m (+65%) on higher contribution from both oleochemical and refining sub-segments, and 3) higher share of profits from associates.

Against estimates: Above. IOI’s 1QFY22 core earnings came-in above ours and consensus’ expectations.

Key Highlights. According to the management, the refinery and commodity marketing sub-segment has been enjoying two quarters of positive refining and fractionation margins – and expected the performance to be satisfactory given the positive margins and the strategic location of the refinery complex in Sandakan, Sabah.

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. Conversely, the plantation segment is expected to continue to sustain its performance given higher palm oil price anticipated in the coming quarter.

Our call: Maintain BUY with unchanged TP of RM4.80 based on average 5-yr low P/B of 3.1x and BV/share of RM1.55. Following the results, we changed our FY22/23 earnings forecast to RM1.24bn and RM1.20b respectively from RM1.39bn and RM1.03bn previously as we revisit our assumptions on ASP of palm products, margins, cost and expenses including tax and levy.

Source: BIMB Securities Research - 25 Nov 2021