Review

• IOI Corporation’s (IOI) 1QFY24 results came in below ours but within consensus estimates. Excluding the forex impact and other non-core items, 1QFY24 core net profit decreased by 45.8% YoY to RM282.9mn on the back of a 39.9% plunge in revenue. The deviation was mainly due to lower contribution from the downstream division and higher finance cost.

• Plantation: Despite higher FFB production (+10.3% YoY), 1QFY24 operating profit plunged 22.3% YoY to RM228.8mn, dragged by lower palm oil prices. The CPO and PK prices declined 15.7% and 16.8% YoY to RM3,789/tonne and RM2,100/tonne, respectively.

• Manufacturing: 1QFY24 operating profit plunged 95.0% YoY to RM15.3mn. Excluding non-core items, the core profit stood at RM14.0mn, mainly to lower margins from oleochemical and refining sub-segments as well as lower sales volume from the refining sub-segment.

• No dividend was declared for the quarter under review.

Impact

• We tweak our FY24 earnings lower by 6.5% after factoring in lower-thanexpected 1QFY24 results and lower contribution from the downstream division. While for FY25, we revise FY25 earnings higher by 7.0% after factoring in lower production and finance costs.

Outlook

• Management expects the CPO price to stay around RM3,750 – RM4,050/tonne in the next two months before moving higher as a result of harvesting disruptions due to monsoon season, which may trigger lower production.

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

• Meanwhile, management expects the outlook for the downstream oleochemical sub-segment to remain challenging due to stiff competition from Indonesian refiners, the slowdown in global demand and rising geopolitical tensions. Management expects that the current low or negative refining margins to remain.

Valuation

• Maintain IOI as HOLD with a TP of RM4.27/share, 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 - 29 Nov 2023