IOICORP’s 1QFY22 CNP of RM453.8m (+80% YoY) is above our/consensus’ expectations at 38%/37%. Looking forward, higher CPO prices could be offset by weaker FFB output and potentially weaker downstream (higher feedstock prices). Raise FY22- 23E CNP by 8-4%. Maintain MP with TP of RM4.05 based on rolled-over CY22E PER of 21x (-1.25SD). At CY22E PER of ~20x, IOICORP offers limited upside. Closest peer KLK’s valuations (PER of <16x) is more attractive.

Above expectations. IOI Corporation (IOICORP) registered 1QFY22 Core Net Profit (CNP) of RM453.8m (+25% QoQ; +80% YoY), accounting for 38%/37% of our/consensus’ expectations. 1QFY22 FFB output of 746k MT is within our expectation at 24%. Absence of DPS is as expected.

Results’ highlight. YoY, despite lower FFB output (-15%), 1QFY22 CNP leapt (+80%) on the back of higher average CPO price (+56%) which resulted in a higher plantation segmental operating profit (+73%). QoQ, 1QFY22 CNP rose (+25%) lifted by: (i) 9% improvement in plantation segmental profit from higher average CPO price (+11%) and FFB output (+3%), as well as (ii) 117% jump in downstream segmental profit from higher sales (+5%) and margin improvement (+2ppt).

Weaker production ahead. We think higher CPO prices (QTD 1QFY22: +17% QoQ) could be offset by weaker FFB output. Downstream segment’s margins could come under pressure from high feedstock prices. 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 FY22-23E CNP by 8-4% as we impute higher CPO price of ~RM3,400- RM3,100/MT (from RM3,150-RM3,000/MT) and adjust for prosperity tax.

Maintain MARKET PERFORM with an unchanged TP of RM4.05 based on a rolled-over CY22E PER of 21x reflecting -1.25SD. Currently, trading at CY22E PER of ~20x, we think IOICORP offers limited upside. Closest peer KLK’s valuation (PER of <16x) 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 Nov 2021