IOICORP’s FY21 CNP of RM1.075b (+28% YoY) is within our (103%), but below consensus’ (94%), expectation. DPS of 10.5 sen beat our expectations by 24%. Strong upstream in 1QFY22 on higher CPO prices and firm production will offset weaker downstream (higher feedstock prices). Raise FY22E CNP by 9% and introduce FY23E CNP of RM1.07b (-10%). Maintain MP with TP of RM4.05 based on FY22E PER of 21x (-1.25SD). At FY22E PER of 20.3x, IOICORP is fairly valued. Closest peer KLK’s valuations (PER of ~17x) is more attractive. IOICORP’s ESG score is 81%.

Within expectations. IOI Corporation (IOICORP) registered 4QFY21 Core Net Profit (CNP) of RM362.9m, which brought FY21 CNP to RM1.075b (+28% YoY), which is within our (103%), but below consensus’ (94%) expectations. FY21 FFB output of 2.92m MT (-6% YoY) is within our expectation at 97%. However, FY21 DPS of 10.5 sen beat our expectation by 24%.

Boosted by upstream. QoQ, 4QFY21 CNP leapt (+114%) on the back of higher average CPO price (+14%) and higher FFB output (+32%) which resulted in a 135% improvement in plantation segmental operating profit. YoY, FY21 CNP rose (+28%) as improvement in plantation segmental profit (+78%) on the back of higher average CPO price (+33%) outstripped lower resource based segmental profit (-14%) due to higher feedstock prices.

Strength to continue into 1QFY22. Backed by higher CPO prices (QTD 1QFY22: +4% QoQ) and firm production, we think 1QFY22 earnings is likely to show similar strength as 4QFY21. The Group’s production typically peaks in Sep-Oct, and we expect the trend to continue this year. Downstream segment’s margins should continue to be pressured by high feedstock prices, but should be more than offset by upstream segment. Meanwhile, the group is still hunting for potential M&As with a ~RM800m war chest earmarked for investments, with preference towards brownfield upstream plantation assets.

Raise FY22E CNP by 9% as we impute higher CPO price of RM3,150/MT (from RM2,950/MT). Introduce FY23E CNP of RM1.07b on average CPO price of ~RM3,000/MT and flat FFB.

Maintain MARKET PERFORM with an unchanged TP of RM4.05 based on FY22E PER of 21x (from 23x), reflecting -1.25SD from mean on additional 9% ESG discount. Currently, trading at FY22E PER of 20.3x, we think IOICORP is fairly valued. Closest peer KLK’s valuation (PER of c.17x) 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 - 25 Aug 2021