• IOI Corp’s 6MFY21 core net profit of RM544.3m (+44.1% yoy) came in above our expectation due to better-than-expected contributions from its plantation division and associates
• We raise our IOI Corp FY21E core earnings forecasts by 13.5% to take into account higher contribution from its plantation division with higher CPO ASP assumption for FY21E of RM2,850/MT and higher earnings from its associates
• Our DCF-derived TP has been raised to RM4.82, and given the potential 13.7% upside to our new TP, we upgrade our call on IOI Corp to BUY from HOLD following the correction in its share price

Higher revenue from plantation and resource-based manufacturing divisions

IOI Corp’s 6MFY21 revenue was higher by 32.2% yoy at RM4.93bn, due to an increase in contribution from both the plantation and resource-based manufacturing divisions. EBITDA margin improved slightly by 0.2ppt yoy to 16.6% in 6MFY21 due to better margin at its plantation division but partially offset by weaker margin at the resource-based manufacturing division. IOI Corp’s headline PBT (which is inclusive of net foreign currency translation gain on foreign currency denominated borrowings as well as fairvalue loss on derivative financial instruments from the resource-based manufacturing division) increased by 68.9% yoy to RM790.2m, attributable to better performance from the plantation division due to higher CPO prices and FFB production but partially offset by lower profit from the resource-based manufacturing division due to lower contributions from the oleochemical sub-segment given the lower margins and lower share of associate result from Loders. For 6MFY21, IOI Corp’s CPO ASP was higher at RM2,782/MT, up 30.7% yoy (6MFY20 CPO ASP: RM2,128/MT), and FFB production increased by 2.5% yoy to 1.64m MT.

6MFY21 Core Net Profit at RM544.3m – Above Our Expectations

After excluding one-off items, IOI Corp’s 6MFY21 core net profit increased by 44.1% yoy to RM544.3m. This came in above our expectations and the variance was mainly due to higher-than-expected contribution from its plantation division given the strong CPO prices achieved and higher-than-expected contribution from its associate Bumitama. IOI Corp also declared a DPS of 4.5 sen, higher than our earlier expectations (6MFY20: 4 sen).

Source: Affin Hwang Research - 24 Feb 2021