1QFY21 core net profit of RM209.5m (QoQ: -9.4%; YoY: +6.0%) came in within expectations, accounting for 23.0-23.1% of consensus and our full-year estimates. Maintain core net profit forecasts for now, pending a review on CPO price projection. Based on our assumptions, every RM100/mt change in our average CPO price projection will result in a 5% change in our core net profit forecasts. Maintain HOLD rating, with slightly higher TP of RM4.42, as we recalibrated our model (following the release of FY20 annual report).

Within expectations. 1QFY21 core net profit of RM209.5m (QoQ: -9.4%; YoY: +6.0%) accounted for 23.0-23.1% of consensus and our full-year estimates. We consider the results within expectations, as stronger performance at upstream segment (on the back of higher CPO prices) will likely be partly offset by weaker downstream performance (arising from higher feedstock costs).

Exceptional items (EIs) in 1QFY21. The core net profit of RM209.5m was arrived after adjusting for (i) RM98.5m net forex translation gain on foreign currency denominated borrowings and deposits, (ii) RM19.7m fair value loss on derivative financial instruments at plantation segment, and (iii) RM49.8m fair value gain on derivative financial instruments at manufacturing segment.

QoQ. Core net profit fell 9.4% to RM209.5m in 1QFY21, as better upstream performance (arising from higher palm product prices) were more than offset by weaker showing at the manufacturing division (due mainly to margin erosion at the refining sub-segment, albeit partly mitigated by stronger contribution from special fats associate and higher sales volume and oleochemical sub-segment) and lower contribution from Bumitama.

YoY. Core net profit expanded by 6.0% to RM209.5m in 1QFY21, due to better performance at upstream segment (arising from higher palm product prices and FFB output), which more than mitigated weaker performance at manufacturing segment (arising from lower margins, which in turn affected earnings at both refining and oleochemical sub-segments), as well as weaker contribution from specialty fats associate (which performance in Asia was negatively impacted by Covid-19).

FFB output. IOI clocked in FFB output growth of 9.6% (to 879k tonnes in 1QFY21), better than management’s previous FFB output growth guidance (flattish or slightly lower). Management expects its oil palm crop production to decline in the next few months (until Jan/Feb-2021) due to low production season and labour shortfall (as a result of CMCO and the freeze of new foreign labour intake). For now, we are maintaining our FFB output growth assumption of 2.6% for FY21.

Forecast. Maintain for now (based on unchanged average CPO price projections of RM2,350-2,400/mt for FY21-22), pending a review on CPO price projection. Based on our assumptions, every RM100/mt change in our average CPO price projection will result in a 5% change in our core net profit forecasts.

Maintain HOLD with higher TP of RM4.42. We maintain our HOLD rating on IOIC, with a marginally higher SOP-derived TP of RM4.42 (from RM4.38 earlier), as we recalibrated our model (following the release of FY20 annual report).

Source: Hong Leong Investment Bank Research - 17 Nov 2020