Review

• IOI Corporation’s (IOI) 4QFY23 results came in within expectations. Excluding the forex impact and other non-core items, 4QFY23 core net profit decreased by 62.1% YoY to RM205.8mn on the back of a 47.8% plunge in revenue.

• Both upstream and downstream divisions registered weaker earnings compared to last year.

• Cumulatively, FY23 core net profit decreased 23.0% YoY to RM1,376.0mn in tandem with a 25.6% drop in revenue.

• Plantation: FY23 operating profit plunged 44.0% YoY to RM980.3mn, dragged by lower FFB production (-1.5% YoY), higher production cost and lower contribution from associates. The CPO and PK prices declined 12.2% and 37.9% YoY to RM4,118/tonne and RM2,233/tonne, respectively.

• Manufacturing: FY23 operating profit increased 32.5% YoY to RM660.6mn. Excluding non-core items, the core profit stood at RM718.7mn, spurred by higher margins from the refining sub-segments.

• The group declared a second dividend of 5.0 sen/share, bringing the total dividend to 11.0 sen/share for FY23, which is lower than the 14.0 sen/share declared for FY22.

Impact

• We tweaked our FY24 and FY25 earnings forecast higher by 1.7% and 1.3% after updating FY23 figures.

Outlook

• Management expects the CPO price to stay around RM3,500 – RM4,000/tonne until the end of the year before moving higher as a result of the looming El-Nino phenomenon, which may bring in lower production.

• FFB production is expected to grow moderately in FY24 due to increased efficiency from fully replenished new workers in Peninsular Malaysia and higher production from the young palm trees in Indonesian plantations despite the El-Nino phenomenon.

• Meanwhile, management expects the outlook for the downstream oleochemical sub-segment to remain challenging due to slowdown in global demand and rising geopolitical tensions.

Valuation

• Maintain IOI as HOLD with a higher TP of RM4.27/share (previously RM4.20) based on 18x CY24 EPS.

• Key risks are, 1) a down cycle in CPO price, 2) escalation in production cost, 3) global economic slowdown, 4) lower-than-expected FFB production, 5) increasing supply of soybean oil in the market.

Source: TA Research - 23 Aug 2023