Review

• IOI Corporation’s (IOI) 4QFY24 results came in within our expectations but below consensus full-year estimates. Excluding the impact of forex and other non-core items, 4QFY24 core net profit grew by 26.7% YoY to RM260.7mn, driven by a 30.2% increase in revenue.

• Cumulatively, FY24 core net profit plummeted 19.2% YoY to RM1.1bn, in line with a 17.1% decline in revenue. The weaker performance was primarily due to lower contributions from the downstream division.

• Plantation: Despite lower palm oil prices, FY24 operating profit rose by 1.6% YoY to RM995.7mn, supported by a 4.4% increase in FFB production. The prices of CPO and PK decreased by 6.4% and 1.0% YoY, reaching RM3,856/tonne and RM2,210/tonne, respectively.

• Manufacturing: FY24 operating profit plummeted by 78.5% YoY to RM142.3mn. Excluding non-core items, the core profit fell by 85.4% YoY. The disappointing performance was mainly due to reduced margins in the oleochemical and refining sub-segments, partially offset by higher contributions from associates.

• The group declared a second dividend of 5.0 sen/share, bringing the total dividend for FY24 to 9.5 sen/share, which was lower than the 11.0 sen/share declared for FY23.

Impact

• We adjusted our earnings forecast for FY25 and FY26 upwards by 1.0% and 1.3%, respectively, after updating the FY24 figures.

Outlook

• We expect the FFB production to increase going forward, largely due to improved harvesting activities, following the resolution of labour shortage issues. However, we believe the CPO prices are likely to be affected by bumper soybean harvests in the U.S. and South America. The increase in supply in these regions, soybean in particularly, is expected to put downward pressure on CPO prices.

• Management anticipates a strong performance in 1HFY25, as European customers are stocking up in advance of the EUDR regulations that will take effect on 30 Dec 2024. Despite some uncertainties surrounding EUDR, the group's dedication to ESG principles and its RSPO-certified palm oil should ensure compliance and maintain competitiveness in Europe.

• Meanwhile, management noted that the lease on the Rotterdam refinery, which supplies raw materials for Bunge Loders Croklaan (BLC)'s Amsterdam plant, will expire in end-2024. This would temporarily affect the cost of raw materials in Europe. However, the issue is expected to be resolved with a new refinery plant in Amsterdam, set to be completed by 4Q 2025.

Valuation

• Maintain BUY on IOI with a revised target price of RM4.17 (previously RM4.29). This adjustment reflects a reduction in PER by 1x multiple to 18x, aligning it with the long-term sector average PER. We see a potential downside risk to CPO prices due to weak soybean prices, driven by oversupply of soybeans.

Source: TA Research - 27 Aug 2024