IOI’s 1QFY20 core net profit of RM197.6m (QoQ: +25%; YoY: +12.4%) came in within expectations, accounted for 23.1-23.7% of our and consensus full-year estimates. Maintain core net profit forecasts, SOP-derived TP of RM4.72 and HOLD rating on the stock. We believe further share price appreciation is capped by its pricey valuations. At RM4.45, IOI is trading at FY20-21 P/E of 33.6x and 30.1x, respectively.

Within expectations. 1QFY20 core net profit of RM197.6m (QoQ: +25%; YoY: +12.4%) accounted for 23.1-23.7% of our and consensus full-year estimates. We consider the results within expectations, as we expect performance to improve in subsequent quarters (underpinned by the strong recovery in palm product prices since Jan-19).

QoQ. Core net profit rose 25% to RM197.6m mainly on the back of (i) higher realised average CPO price of RM2,014/tonne (vs. RM1,988/tonne in previous quarter) and improved OER at plantation segment, (ii) slightly higher contribution from manufacturing segment (arising from improved oleochemical sub-segment performance), and (iii) improved contribution from 30%-owned Loders.

YoY. Core net profit increased by 12.4% to RM197.6m, as lower palm product prices were more than mitigated by higher FFB production, improved contribution from manufacturing segment (arising from higher sales volume and margins from refining sub-segment, and contribution from 30%-owned Loders) and lower finance cost.

FFB output growth of 12.4% in 1QFY20. FFB output growth resumed on uptrend, growing by 12.4% to 801.5k tonnes in 1QFY20. However, management guided for lower FFB production going forward, due to more intensive replanting program (but partly mitigated by higher production from its young Indonesian plantings).

Forecast. Maintain.

Maintain HOLD; TP: RM4.72. Maintain SOP-derived TP of RM4.72 (see Figure #2) and HOLD rating on the stock. We believe further share price appreciation is capped by its pricey valuations. At RM4.45, IOI is trading at FY20-21 P/E of 33.6x and 30.1x, respectively.

Source: Hong Leong Investment Bank Research - 3 Dec 2019