• IOI Corp’s FY20 core net profit of RM740.2m (+6.5% yoy) came in above expectations due to better-than-expected contribution from its plantation division.
• We raise our FY21-22 core earnings forecasts by 10-13%, to take into account higher contribution from its plantation division.
• Our DCF-derived TP has also been raised to RM4.72. With potential upside of 3.7% to our new TP, we maintain our HOLD rating on IOI Corp.

FY20 Core Net Profit at RM740.2m – Above Our Expectations

FY20 revenue was higher by 5.6% yoy at RM7.8bn, due to an increase in contribution from the plantation (external revenue only) and resource-based manufacturing divisions. For FY20, IOI Corp’s CPO ASP was higher at RM2,314/MT, up 14.3% yoy (FY19 CPO ASP: RM2,025/MT), but this was partially offset by lower FFB production at 3.1m MT, down 8.9% yoy partly attributable to aggressive replanting and also the delayed effects of dry weather and the Movement Control Order that affected harvesting. However, IOI Corp’s headline PBT (which is inclusive of net foreign currency translation loss on foreign currency denominated borrowings, net inventories written back and fair value gain on options) declined by 5.3% yoy to RM826.7m. After excluding one-off items, IOI Corp’s FY20 core net profit increased by 6.5% yoy to RM740.2m. This came in above our expectations and the variance was mainly due to higher-than-expected contribution from its plantation division. Also, IOI Corp has declared an interim DPS of 4 sen, bringing the total FY20 DPS to 8 sen (FY19: 8 sen), as expected.

Stronger Core Net Profit Sequentially, Up >200% Qoq to RM278.4m

IOI Corp’s 4QFY20 revenue and PBT increased by 0.2% and >400% qoq, respectively to RM2.04bn and RM306.2m. Higher plantation profits were due to an increase in FFB production (+37% qoq to 865.5k MT), but this was partially offset by a weaker selling price for CPO at RM2,370/MT (3QFY20 ASP: RM2,704/MT), while an improvement in resource-based manufacturing profits was due to better contribution from the oleochemical and refining sub-segments. After adjusting for one-off items, IOI Corp’s 4QFY20 core net profit was higher by >200% qoq to RM278.4m.

Maintain HOLD Rating on IOI Corp With Higher 12-month TP of RM4.72

Given the better-than-expected FY20 results, we raise our FY21-22E core EPS by 10.1- 12.8%, mainly to take into account higher contribution from the plantation division. Our CPO ASP assumption for FY21-22E stands at RM2,400-2,500/MT. We also introduce our 2023 forecasts. We raise our DCF-derived TP to RM4.72 and maintain our HOLD rating given the 3.7% upside potential

Source: Affin Hwang Research - 26 Aug 2020