FY21 core net profit of RM1.075bn (+35.8%) missed our expectation, accounting for only 90.9% estimate, due mainly to lower-than-expected FFB output. Against consensus, results met market expectations, accounting for 95.7% of estimates. Declared 2nd interim DPS of 6.0 sen (ex-date: 10 Sep 2021), bringing total DPS for FY22 to 10.5 sen. Maintain core net profit forecasts for now, pending a sectorwide review on CPO price assumption post results season. Based on our estimates, every RM100/mt increase in our CPO price assumption will lift our core net profit forecasts by circa 3-4%. Maintain BUY rating on IOI, with an unchanged sum-of-parts TP RM4.67.

Missed our expectation. 4QFY21 core net profit of RM381.4m (QoQ: +153.2%; YoY: +65.1%) took FY21 core net profit to RM1.08bn (+35.8%). The results missed our expectation, accounting for only 90.9% estimate, due mainly to lower-than-expected FFB output. Against the consensus, the results met market expectations, accounting for 95.7% of consensus estimates.

Exceptional items (EIs) in FY21. Core net profit of RM1.08bn in FY21 was arrived after adjusting for (i) RM125.4m forex translation gain on foreign currency denominated borrowings and deposits, (ii) RM4m fair value loss on derivative financial instruments, (iii) RM42.8m forex gain, (iv) RM38.7m fair value gain on other investments, (v) RM21.8m gain from changes in fair value of biological assets, (vi) RM31.1m indemnity claims from disposal of Bunge Loders Croklaan, and (vii) RM267.9m gain from disposal of a refinery in Rotterdam.

Dividend. Declared 2nd interim DPS of 6.0 sen (ex-date: 10 Sep 2021), bringing total DPS for FY22 to 10.5 sen.

QoQ. Core net profit more than doubled to RM381.4m in 4QFY21 (from RM150.8m in previous quarter), boosted by higher FFB output (+32.2%) and realised palm product prices, which more than mitigated weaker contribution from 30%-owned specialty fats associate (Loders).

YoY. Core net profit surged 65.1% to RM381.4m in 4QFY21 (from RM231.2m SPLY), boosted mainly by significantly higher realised palm product prices and higher contribution from 30%-owned specialty fats associate, which altogether more than offset a 15.9% decline in FFB output and weaker manufacturing performance (as a result of lower refining margin, albeit somewhat cushioned by higher contribution from oleochemical sub-segment).

YTD. Core net profit surged 35.8% to RM1.08bn in FY21, helped mainly by significantly higher palm product prices and improved contribution from specialty fats associate, but partly offset by lower manufacturing earnings and FFB output (-5.8%).

Outlook. Management anticipates further improvement in its FY22 performance, supported by high palm product prices (as it expects protracted labour shortage in Malaysia will continue to lend support to CPO price), better performance at specialty fats segment and higher downstream sales volume.

Forecast. Maintain for now, pending a sector-wide review on CPO price assumption post results season. Based on our estimates, every RM100/mt increase in our CPO price assumption will lift our core net profit forecasts by circa 3-4%.

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 - 25 Aug 2021