3QFY21 core net profit of RM169.7m (QoQ: -47.0%; YoY: +18.9%) took 9MFY21 sum to RM712.1m (+27.1%), which accounted for 60.3% of our full-year estimate. We consider the results within our expectation as we anticipate 4Q earnings to come in stronger, underpinned by higher CPO price, crop recovery and better performance at specialty fats associate. Maintain core net profit forecasts, sum - of-parts TP of RM4.67, and BUY rating on IOI.

Within our expectation. 3QFY21 core net profit of RM169.7m (QoQ: -47.0%; YoY: +18.9%) took 9MFY21 sum to RM712.1m (+27.1%), which accounted for 60.3% of our full-year estimate. We consider the results within our expectation as we anticipate 4Q earnings to come in stronger, underpinned by higher CPO price, crop recovery and better performance at specialty fats associate. Against consensus, the results accounted for 69.4% of consensus full-year estimate.

Exceptional items in 9MFY21. Core net profit of RM712.1m in 9MFY21 was arrived after adjusting for (i) RM155.4m forex translation gain on foreign currency denominat ed borrowings and deposits, (ii) RM85m forex gain, (iii) RM14.3m fair value gain on other investments, (iv) RM188.5m fair value loss on derivative financial instruments, (v) RM18.9m fair value gain on biological assets, (vi) RM30.2m indemnity claims from disposal of Bunge Loders Croklaan, and (vii) RM267.9m gain from disposal of a refinery in Rotterdam.

QoQ. Core net profit declined by 47.0% to RM169.7m in 3QFY21, as higher realised palm product prices and contribution from oleochemical sub-segment were more than negated by lower FFB output (-27.6%), weaker refining sub-segment (arising from lower sales volume), and marginally weaker contribution from specialty fats associate.

YoY. Core net profit inched up by 18.9% to RM169.7m in 3QFY21 (from RM142.7m SPLY), due to sharply higher realised palm product prices, improved manufacturing performance, and sharply higher contribution from specialty fats associate (in absence of provision and mark-to-market losses), which altogether more than mitigated lower FFB output (-12.9%).

YTD. 9MFY21 core net profit surged 27.1% to RM712.1m, boosted mainly by significantly higher realised palm product prices and contribution from specialty fats associate (due to better performance in North America and Europe operations, and the absence of provision and mark-to-market losses), and better contribution from refining sub-segment. All these were however partly negated by lower FFB output (-1.9%) and weaker performance at oleochemical sub-segment (as a result of weaker margins).

Outlook. Management guided that weaker refinery performance (due to export duty differential between Malaysia and Indonesia) and margin compression at oleochemical sub-segment (due to high feedstock price) will be mitigated by elevated palm product prices, crop recovery, and improving performance at specialty fats associate (supported by strong performance in North America region and improving economic activities in European region).

Forecast. Maintain.

Maintain BUY, TP: RM4.67. We maintain our BUY rating on IOI, with an unchanged sum-of-parts TP RM4.67 (see Figure #2).

Source: Hong Leong Investment Bank Research - 24 May 2021