Overview. IOI recorded a 3% increase in core PBT to RM527.0m in 3QFY22 mainly due to higher contribution from the plantation segment as plantation’s margin increased to 63% from 37% in 3QFY21 on higher ASP realised for CPO and PK to RM5,064/MT and RM4,588/MT respectively as opposed to RM3,211/MT and RM2,616/MT previously. However, on a quarterly basis, core PBT fell by 18%, in line with lower revenue and lower contribution from all segments.

Against estimates: Above. IOI’s 9MFY22 core earnings came-in above our expectations amid revenue and core profit that increased by 52% and 29% respectively to RM11.8b and RM1.28b due to higher contributions from all segments. Plantation segment profit increased strongly or by 99% to RM1,553m as higher CPO and PK price realized has partly offset the lower production. This was also aided by a higher share of associate results from BAL. Conversely, higher profit contribution from the Resource-based Manufacturing (RBM) segment was due to higher contribution from the oleochemical sub-segment with improvement in margins offset by lower sales volume from the refining sub-segment and lower share of associate result from Loders.

Outlook. Although volatility remains present with the increased concern of ESG issues in the industry, we are positive on IOI’s long-term earnings growth prospect. We believe the RBM segment would continue to perform well despite the potential margin squeeze on higher feedstock costs - to benefits from favourable demand due to supply-demand imbalances in the market. Conversely, the plantation segment would continue to sustain its performance given a better PO prices outlook on the back of higher CPO prices currently.

Our call: Following IOI’s impressive 1Q22 results, we raised our FY22/23 earnings forecast higher to RM1.64bn and RM1.45b respectively from RM1.49bn and RM1.38b previously as we revisit our assumptions on ASP of palm products, margins, cost and expenses. Maintain a BUY call with TP of RM5.00 based on average 3-yrs P/BV of 3.0x and BV/share of RM1.70.

Source: BIMB Securities Research - 23 May 2022