Review

• IOI Corporation’s (IOI) 3QFY24 results came in within ours but below consensus’ full-year estimates. Excluding the forex impact and other noncore items, 3QFY24 core net profit decreased by 2.5% YoY to RM243.3mn on the back of a 7.4% drop in revenue.

• Cumulatively, 9MFY24 core net profit plummeted by 27.2% YoY to RM851.4mn in tandem with a 26.7% drop in revenue. Both the upstream and downstream divisions showed weaker performances compared to the previous year.

• Plantation: Despite higher FFB production (+4.4% YoY), 9MFY24 operating profit fell 8.4% YoY to RM737.1mn, dragged by lower palm oil prices. The CPO and PK prices experienced a decline of 9.6% and 6.2% YoY, reaching RM3,781/tonne and RM2,131/tonne, respectively.

• Manufacturing: 9MFY24 operating profit plunged 84.1% YoY to RM103.8mn. Excluding the non-core items, the core profit dropped by 70.4% YoY. These poor results were primarily attributable to decreased margins in the oleochemical and refining sub-segments, along with reduced sales volume in the refining sub-segment.

• No dividend has been declared for the quarter under review.

Impact

• We tweak our FY25 earnings forecast by 8.2% to account for lower contribution from the manufacturing division. Meanwhile, we also introduce our FY26 earnings forecast of RM1,399.3mn (+2.4% YoY).

Outlook

• Management anticipates that the CPO price will remain in the range between RM3,700 and RM4,100 per tonne over the next three months. The near-term price pressure of CPO may arise due to a bumper soybean harvest in South America. Nevertheless, the expected replenishment of palm oil stocks by importing countries with low inventories would help to alleviate the price pressure.

• FFB production is projected to increase by 7% to 10% in FY24. This growth is attributed to enhanced efficiency with a full workforce in Peninsular Malaysia and heightened production from young palm trees in Indonesian plantations.

• Meanwhile, management expects the outlook for the downstream oleochemical sub-segment to remain challenging amid stiff competition from Indonesian refiners, a slowdown in global demand, and escalating geopolitical tensions.

Valuation

• Rolling forward our valuation base year to CY25, we raise IOI’s TP to RM4.39 (previously RM3.79), based on a PER of 20x. Upgrade IOI from Sell to BUY due to more upside.

Source: TA Research - 27 May 2024