IOI Corporation (IOI)'s FY23 core net profit trailed our estimates marginally, though came in within consensus expectations, representing 94% and 97% of the full-year estimates, respectively. The group declared a second interim DPS of 5sen (Ex-date on 6 September 2023), bringing total DPS for FY23 to 11sen (translating to a dividend yield of 2.7%). Looking ahead to FY24F, we expect a - 2% YoY decline in net earnings due to weak global economic environment and stiff competition from other edible oils especially from our counterparty Indonesia. Following the result, we tweaked our earnings forecast and revised lower our TP from RM4.75 to RM4.50. Our recommendation remains at BUY.

• Below expectations. IOI’s FY23 headline PATAMI was below our and consensus’ estimates. The difference between reported and core PATAMI are the fair value (FV) changes on biological assets, FV changes on derivatives financial instruments, gain on disposal of 10% equity interest of an associate and unrealized loss or gain on foreign exchange.

• Dividend. The group declared a second interim dividend of 5.0sen, bringing total FY23 DPS to 11.0sen (versus 14.0sen in FY22). This translates to a yield of 2.7% based on current market price.

• QoQ. On a QoQ basis, the decrease in PBT to RM93.1mn (-64%) was primarily attributed to lower contribution from resourcesbased manufacturing (RBM)segment. This reduction was offset by higher contribution from the plantation segment, attributable to a jump in share of associates' results amounting to RM76.9mn (compared to a loss of RM41.1mn in 3Q23). The decline in the RBM segment was mainly due to a reduction in sales volume and margins in the refining sub-segment.

• YoY/YTD. Lower PBT recorded in 4Q23/FY23 (-64% YoY, -30% YTD) was due to a drop in contribution from Plantation segment (-52% YoY, -44% YTD) to RM252mn/RM1,166mn due to a decrease in share of profit from associate amounting to RM102mn/RM272mn (-33% YoY, -21% YTD), mitigated by higher contribution from the RBM segment on account of higher margins from the refining subsegment (Table 2). The decline in Plantation results was primarily caused by higher cost of production and lower CPO and PK prices realised during the period.

• Outlook. Despite potential challenges posed by volatile CPO prices, moderate in production and stiff competition from other edible oils, we remain optimistic in IOI's long-term prospects. Following the result, we tweaked our FY24F earnings forecast lower to RM1,093mn from RM1,218mn previously, as we revisit our assumptions on ASP of palm products, productions, margins, cost and expenses.

• Our call. Hence, our lower TP from RM4.75 to RM4.50 (based on P/BV of 2.27x to BV/share of RM1.99). Maintain a BUY. Our TP offers 11% upside potential from the current price.

Source: BIMB Securities Research - 23 Aug 2023