• Overview. IOI Corporation (IOI) recorded an 18% YoY increase in core PBT to RM669.1mn in 1QFY23 thanks to higher contribution from Resource-based  Manufacturing (RBM) segment and higher share of profit from associate,  Bumitama Agri Ltd (BAL), amounting to RM79.7mn (+13% YoY). Plantation segment margins decreased however or to 50.9% from 61.2% in 1QFY22 on lower productions and average selling prices (ASP) realised for PK of RM2,524/MT as opposed to RM2,551/MT previously – whilst 9% versus 4.4%  in 1QFY22 for RBM segment (Table 2 and 3). On a quarterly basis, lower profit (-3% QoQ) was due to 1) a decline in share of profit from associate, BAL (- 47.9% QoQ to RM79.7mn), and 2) lower ASP realised of CPO (-14.5% QoQ to  RM4,688/MT) and PK (-34.4% QoQ to RM2,524/MT).

• Against estimates: Inline. IOI’s 1QFY23 core earnings were broadly in line with our expectations. RBM segment profit increased strongly or by >100%  to RM321.5mn as higher margins from Oleochemical and refining sub-segments has partly offset the lower sales volume from these sub-segments.

• Key Highlights. On a separate announcement, IOI is set to extend the 2nd Revised Timeframe for the utilisation of proceed received from the disposal of 70% equity stake held in Loders for additional 12 months up to 30  November 2023. This is to enable the Group to continue identify and  evaluate the feasibility of potential investments and formulate the group strategies holistically.

• Outlook. We remain positive on IOI’s long-term earnings prospects despite the volatility in CPO price and stiff competition from other edible oils that  may pose a challenge to its overall business. Its strategic positions in different segment of palm oil value chain (integrated player) comes with operational efficiency and hence, earnings visibility. Its diversified earnings base and sustainable downstream operations could help cushion the impact of CPO  price volatility.

• Our call: Maintain a BUY call with unchanged TP of RM4.75 based on  historical low 3-year average P/BV of 2.5x to FY23 BV/share of RM1.90. Our  TP offers a 19.35% upside potential from the current market price.

Source: BIMB Securities Research - 28 Nov 2022