IOICORP’s 9MFY21 CNP of RM712.1m (+17% YoY) is deemed within our/consensus’ expectations at 68%/69%. 9MFY21 FFB outputat 70% and absence of dividend are also within expectations. We expect a strong end to FY21 – anticipating higher CPO prices and production recovery. Maintain MP with lower ESG-adjusted TP of RM4.20 based on FY22E PER of 24x (-1.0SD). At FY22E PER of 23.4x, IOICORP is fairly valued. Closest peer KLK’s valuations (PER of 20x) is more attractive. IOICORP’s ESG score is 81%.

Deemed within expectations. IOI Corporation (IOICORP) registered 3QFY21 Core Net Profit (CNP) of RM169.7m, which brought 9MFY21 CNP to RM712.2m (+17% YoY), which we deem within our/consensus’ expectations at 68%/69%, as we expect sequential earnings improvement in 4QFY21 on higher CPO prices and production recovery. 9MFY21 FFB output of 2.19m MT (-2% YoY) is also within our expectation at 70%. Absence of dividend is as expected.

Dragged by upstream. QoQ, despite a 7% improvement in average CPO price, 3QFY21 CNP fell (-42%) mainly due to significantly lower FFB output (-28%) which resulted in a 48% decline in plantation segmental operating profit. YoY, 9MFY21 CNP rose (+17%) as higher average CPO price (+26%) overwhelmed lower FFB output (-2%). As a result, plantation segmental operating profit leapt (+76%).

Anticipating a strong end to FY21. Backed by higher CPO prices (QTD 4QFY21: +13% QoQ) and expected production recovery, we anticipate a strong end to the group’s FY21. Meanwhile, the group is still hunting for potential M&As with a c.RM1b war chest earmarked for investments, with preference towards brownfield upstream plantation assets.

No changes to earnings estimate.

Maintain MARKET PERFORM with a lower ESG-adjusted TP of RM4.20 (from RM4.55) based on FY22E PER of 24x (from 26x), reflecting -1.0SD from mean. Currently, trading at FY22E PER of 23.4x, implying -1.0SD valuation, we think IOICORP is fairly valued. Closest peer KLK’s valuation (PER of 20x) is more attractive. Based on our in-house ESG scoring, IOICORP ranks second with a score of 81%. Risks to our call are: sharp rise/fall in CPO prices and a precipitous increase/decline in fertiliser/labour/transportation costs.

Source: Kenanga Research - 24 May 2021