2QFY21 core net profit of RM286.1m (QoQ: +50.7%; YoY: +30.0%) took 1HFY21 core net profit to RM508.3m (+21.7%). The results beat our expectation, accounting for 53.9% of our full-year estimate (consensus: 51.9%), with key variance being higher-than-expected realised palm product prices. We raise our FY21 core net profit forecast by 2.6%, mainly to reflect high palm product prices registered in 1HFY21. FY22-23 core net profit forecasts, on the other hand, are maintained. We upgrade our rating on IOI to BUY (from Hold) with a higher TP of RM4.87 (from RM4.80 earlier).

Above our expectation, within consensus. 2QFY21 core net profit of RM286.1m (QoQ: +50.7%; YoY: +30.0%) took 1HFY21 core net profit to RM508.3m (+21.7%). The results beat our expectation, accounting for 53.9% of our full -year estimate (within consensus: 51.9%), with key variance being higher-than-expected realised palm product prices.

Exceptional items (EIs) in 2QFY21. The core net profit of RM286.1m in 2QFY21 was arrived after adjusting for (i) RM66.2m forex gain, (ii) RM10m fair value gain on other investments, (iii) RM90m fair value loss on derivatives, (iv) RM11.9m fair value loss arising from changed in fair value of biological assets, and ( v) RM95.3m net foreign currency denominated borrowings and deposits.

Dividend. Declared 1st interim DPS of 4.5 sen (ex-date: 9 Mar 2021). For the full-year, we are projecting a total DPS of 8 sen, translating to dividend yield of 1.9%.

QoQ. Core net profit surged 50.7% to RM286.1m in 2QFY21, as a 13.4% decline in FFB output was more than mitigated by higher realised palm product prices (CPO: +16.0%; PK: +33.4%), improved earnings contribution from manufacturing segment (as a result of higher margin at refining sub-segment) and specialty fats associate (Loders).

YoY. Core net profit increased by 30.0% to RM286.1m in 2QFY21, as lower FFB output (-4.7%), weaker contribution from manufacturing segment and higher finance cost were more than mitigated by higher realised palm product prices (CPO: +33.2%; PK: +42.3%) and improved contribution from specialty fats associate.

YTD. 1HFY21 core net profit rose 21.7% to RM508.3m, due to higher FFB output (+2.5%), higher realised palm product prices, and stronger contribution from specialty fats associate, but partly offset by weaker manufacturing earnings (arising mainly from margin erosion at oleochemical sub-segment).

Outlook. Management guided that earnings prospects will remain to good for 2HFY21, as it expects weaker performance at manufacturing segment (no thanks to high feedstock prices) will be mitigated by high palm product prices (as a result of prolonged supply shortfall) and an anticipation in further demand recovery for specialty fats (via Loders).

Forecast. We raise our FY21 core net profit forecast by 2.6%, mainly to reflect high palm product prices registered in 1HFY21. FY22-23 core net profit forecasts, on the other hand, are maintained (based on our unchanged average CPO price forecast of RM2,700/mt).

Upgrade to BUY, with higher TP of RM4.87. Following the upward revision in our FY21 core net profit forecast, we upgrade our rating on IOI to BUY (from Hold) with a higher sum-of-parts TP of RM4.87 (from RM4.80 earlier).

Source: Hong Leong Investment Bank Research - 24 Feb 2021