• Maintain BUY (TP: RM4.50). IOI Corporation (IOI)'s 1QFY24 core net profit of RM282.9mn (-47% YoY/-23% QoQ) was within our expectations but trailed consensus forecasts, accounting for 26% and 21% of the full-year forecasts, respectively. The lower core PBT recorded in 1QFY24 (-49% YoY) was attributed to a decline in contribution from both the Plantation segment (-13% YoY) and Resources-based Manufacturing (RBM) (-82% YoY) to RM314.5mn and RM56.4mn, respectively. This was mainly due to lower CPO and PK prices realized, lower margins from oleochemicals and refining sub-segments, as well as reduced sales volume from the refinery subsegment (refer to Table 2). However, this was mitigated by a higher share of profit from associates, amounting to RM85.7mn (+31% YoY) from the plantation segment and a higher share of associates from Bunge Loders, amounting to RM39.8mn (1QFY23: RM14.1mn) from the RBM segment. Nonetheless, we remain positive on IOI’s long-term prospects despite volatility in CPO prices and stiff competition from other edible oils, which may pose a challenge to its overall business. Its strategic positions in different segments of the palm oil value chain come with operational efficiency and, hence, earnings resiliency. Maintain a BUY call with TP of RM4.50 (based on P/BV of 2.27x to BV/share of RM1.99).

• Key highlights. IOI’s revenue performance in 1QFY24 has gained traction, thanks to the improvement in both the plantation and RBM segments, which increased by 16% QoQ and 11% QoQ, reaching RM678.7mn and RM2.09bn, respectively. The higher FFB and CPO production cushioned the slight drop in the average selling price (ASP) of CPO (refer to Table 2). This resulted in an impressive revenue of RM2,204.2mn, marking a 13% QoQ increase during the period.

• Earnings Revision. No changes in earnings forecast.

• Outlook. We continue to recommend a BUY on IOI, considering it as one of the better-managed plantation groups that offers index-linked and FTSE4Good Index. Its diversified earnings base and sustainable downstream operations could help cushion the impact of CPO price volatility.

Source: BIMB Securities Research - 29 Nov 2023