9MFY22 core net profit of 1.38bn (+93.8%) beat expectations, accounting for 80.5- 82.5% of consensus and our full-year estimates, due mainly to higher-than expected realised palm product prices. We raise our FY22-24 core net profit forecasts by 9.1/28.6/15.6%, mainly to account for higher CPO price assumptions and CPO production cost assumptions at plantation segment. Post earnings revision and roll-forward of valuation base year, we maintain our BUY rating on IOI with a higher TP of RM5.53 based on 22x revised FY24 core EPS of 23 sen.

Above expectations. 3QFY22 core net profit of RM394m (QoQ: -26.0%; YoY: 2.3x) took 9MFY22 total sum to RM1.38bn (+93.8%). The results beat expectations, accounting for 80.5-82.5% of consensus and our full-year estimates, due mainly to higher-than-expected realised palm product prices.

EIs in 9MFY22. Core net profit of RM1.38bn was arrived after adjusting for (i) RM28m fair value gain on biological assets, (ii) RM71.5m fair value gain on derivative financial instruments, (iii) RM49.8m forex translation loss, (iv) RM9.9m forex loss, (v) RM3.9m fair value gain on other investments, (vi) RM88.7m fair value loss on options, (vii) RM20.4m net inventory writedown, (viii) RM29.4m loss on repurchase of guaranteed notes, and (ix) RM54.1m impairment.

QoQ. Core net profit shrunk by 26% to RM394m in 3QFY22, dragged mainly by a 22% decline in FFB output (resulted from seasonal factor) and weaker manufacturing performance, but partly mitigated by higher realised palm product prices. During the quarter, the weaker performance at manufacturing segment was attributable to (i) lower sales volume and margins from refining sub-segments; and (ii) lower earnings contribution from Loders (arising from high freight and energy costs).

YoY. Core net profit surged 2.3x to RM394m in 3QFY22, boosted by an 8.9% increase in FFB output and significantly higher palm product prices. Core PBIT from manufacturing segment, on the other hand, declined significantly to RM63.2m (from RM130.9m a year ago), dragged mainly by lower sales volume and margins from refining sub-segment and lower associate earnings (i.e. Loders).

YTD. 9MFY22 core net profit surged by 93.8% to RM1.38bn, boosted mainly by significantly higher palm product prices (with realised CPO and PK prices increasing by 56.4-81.6% to RM4,518/mt and RM3,521/mt) and improved manufacturing performance (thanks to higher contribution oleochemical sub-segment), which more than mitigated lower FFB output (-3.4%).

Outlook. Management remains optimistic that the decent performance registered in 3QFY22 will be sustained into 4QFY22 (if not stronger), supported by (i) strong palm product prices and seasonal recovery in FFB output, (ii) recovery in palm refining and fractionation margins, and (iii) healthy margins at oleochemical sub-segment (as it expects the tightness of product availability in the oleochemical market to offset elevated feedstock and energy costs).

Forecast. We raise our FY22-24 core net profit forecasts by 9.1%, 28.6% and 15.6%, respectively, mainly to account for higher CPO price assumptions (following our recent upward revision in CPO price assumptions for the sector) and CPO production cost assumptions at plantation segment.

Maintain BUY with higher TP of RM5.07. Post earnings revision and roll-forward of valuation base year (from CY23 to FY24), we maintain our BUY rating on IOI with a higher TP of RM5.07 (vs. RM5.01 earlier) based on 22x revised FY24 core EPS of 23 sen.

Source: Hong Leong Investment Bank Research - 23 May 2022