We deem 1HFY23 core net profit of RM1.04bn (+7.4%) within our expectation, as we anticipate a weaker 2H (vs. 1H) on the back of challenging operating environment at manufacturing segment (in particular, refining and oleochemical sub-segments). Declared 1st interim DPS of 4 sen (going ex on 14 Mar 2023). Maintain earnings forecasts, TP of RM4.36 (based on 22x CY24 core EPS of 19.8 sen) and BUY rating on IOI.

Inline. 2QFY23 core net profit of RM418.6m (-32.3% QoQ; -21.3% YoY) took 1HFY23 total sum to RM1.04bn (+7.4%), accounting for 58.7-69.6% of our and consensus full-year estimates. We consider the results within our expectation, as we anticipate a weaker 2H (vs. 1H) on the back of challenging operating environment at manufacturing segment (in particular, refining and oleochemical sub-segments).

EIs in 1HFY23. Core net profit of RM1.04bn in 1HFY23 was arrived after adjusting for (i) RM11m fair value loss on biological assets, (ii) RM7.5m fair value loss on derivative financial instruments, (iii) RM19.8m forex translation loss, (iv) RM131.7m forex loss, (v) RM19.9m fair value loss on others investments and options, (vi) RM17.2m disposal gain, (vii) RM15.2m net writeback.

Dividend. Declared 1st interim DPS of 4 sen (going ex on 14 Mar 2023).

QoQ. Core net profit shrunk -32.3% to RM418.6m in 2QFY23, dragged mainly by lower palm product prices realised (but partly mitigated by higher FFB output) at plantation segment, (ii) lower share of profit from Bumitama, and (iii) weaker manufacturing performance (arising from margin erosion at oleochemical sub segment).

YoY. Core net profit declined by -21.3% to RM418.6m in 2QFY23, dragged mainly by higher CPO production cost and lower palm product prices realised at plantation segment and weaker share of profit from Bumitama. These were however, partly mitigated by better manufacturing performance (arising from margin expansion at refining sub-segment).

YTD. Core net profit rose by 7.4% to RM1.04bn in 1HFY23, helped mainly by better performance at manufacturing segment (thanks to margin expansion at both refining and oleochemical sub-segments during 1QFY23), which more than mitigated weaker plantation earnings (arising from higher CPO production cost, lower palm product prices realised and FFB output) and weaker contribution from Bumitama.

Outlook. Operating environment at oleochemical sub-segment remains challenging with persistent inflationary pressure and global demand slowdown but will be mitigated by improved uptake from China (following the easing of its zero-Covid policy). On the other hand, earnings at plantation segment will likely be affected by lower palm product prices and elevated input costs (including fuel and fertiliser prices).

Forecast. Maintain, pending further update from results briefing on 3 Mar 2023.

Maintain BUY with unchanged TP of RM4.36. We maintain our BUY rating on IOI, with unchanged TP of RM4.36 based on unchanged 22x CY24 core EPS of 19.8 sen.

Source: Hong Leong Investment Bank Research - 1 Mar 2023