• Maintain BUY, with new SOP-based TP of MYR4.65 from MYR4.70, 11% upside with c.4% FY23F (Jun) yield. IOI Corp’s FY22 core net profit is in line with our, but above consensus estimates. Given our expectations of volatile CPO prices, we believe IOI will perform better than its peers, due to its integrated business model. Valuation looks more attractive now – the stock is trading at 15x FY23F P/E, more than -2SD from its historical mean of 23x.

• FY22 core earnings were in line with our, but above consensus forecasts, at 102% and 112% of FY22F. IOI declared a final DPS of 8 sen, bringing FY22 DPS to 14 sen, or a net payout of 50% and yield of 3.3%.

• IOI recorded a 16% YoY decline in FFB output in 4QFY22, bringing FY22 growth to -6.5% YoY. This is slightly below management’s guidance of a flat to single-digit decline YoY, due to the labour shortage impact (currently at 15-20%). In 1MFY23, FFB has declined 17% YoY, weaker than management’s guidance of a flat to single-digit increase for FY23F. We keep our FFB growth forecasts of +3-4% for FY23-24 for now, pending the upcoming analyst briefing.

• IOI’s achieved CPO price of MYR4,688/tonne (+52% YoY) in FY22, with the 4QFY22 figure at MYR5,260/tonne. IOI’s forward selling policy is generally to sell 70% of output in the first month, 10% in the second month, then minimally in the third month.

• We estimate CPO unit costs rose by around 10-15% YoY in FY22, on the back of a 20% YoY increase in fertiliser costs and higher minimum wages. For FY23, we estimate costs to rise by a further 15-20% YoY, as the bulk of the fertiliser price hike would be reflected in FY23F earnings.

• Downstream margins improved substantially in 4QFY22 to 4.5% (from 1.6% in 3QFY22 and 2% in 4QFY21), bringing FY22 margin to 3.3% (FY21: 2.5%) – on higher margins from its oleochemical and refining sub- segments. This was offset by a lower share of profits from Bunge Loders caused by high energy costs and weaker demand. We keep our EBIT margin assumptions of 2-3% for FY23F-24F for now, as we expect EBIT margin to narrow slightly on the upcoming changes in Indonesia’s tax structure which will affect Malaysian refiners’ margins.

• We tweak earnings down by 2-3% for FY23F-24F after adjusting for FY22 earnings, and introduce our FY25F earnings with a CPO price assumption of MYR3,700/tonne.

• Maintain BUY, with a slightly lower SOP-derived TP of MYR4.65, based on an unchanged 20x FY24F P/E for the plantation division, 12x P/E for its downstream segment, and the value of its stake in Bumitama Agri (BAL SP, BUY, TP: SGD0.80) based on our latest TP for the stock. Our SOP includes a 2% ESG discount, based on RHB’s score of 2.9.

Source: RHB Research - 24 Aug 2022