IOI Corp saw its 9MFY22 core earnings soaring 80% YoY to RM1.3bn after stripping out i) net foreign currency (FX) translation on foreign currency denominated borrowings and deposits (RM49.4m), ii) FX loss (RM9.9m), iii) fair value loss on derivative financial instruments (RM142.8m), v) net gain arising from biological assets (RM28m) and vi) loss on repurchase of Guarantee Notes due in 2022 (RM29.4m). The results made up 65% and 75% of our and consensus expectations, respectively. Nevertheless, we made no changes to our numbers as we expect to see a strong finish in the final quarter on the back of strong contribution from both plantation and oleochemical sub segments. No dividend was declared for the quarter. Maintain Neutral with an unchanged SOP-based TP of RM4.49.

• 3QFY22 revenue (QoQ: -0.4%, YoY: +43.3%). Group revenue jumped 43% YoY to RM4.1bn on the back of stronger contribution from both plantation and resource-based manufacturing segments. Upstream plantation sales rose 16% YoY to RM120m, bolstered by stronger CPO prices and higher FFB production. Average CPO price recorded in 3QFY22 advanced from RM3,211/mt to RM5,064/mt while FFB rose 8.9% YoY to 599,691mt. Resource-based manufacturing sales jumped 44% YoY to RM3.9bn, bolstered by higher contribution from oleochemical sales.

• 3QFY22 core net profit doubled to RM359m. The Group posted stronger core earnings of RM359m, up 111% YoY, lfited by stronger plantation earnings, partially offset by weaker downstream manufacturing earnings. Plantation earnings surged 185% YoY to RM500.6m, bolstered by stronger CPO prices. The lower resource-based earnings of RM63m, down 84% YoY, was mainly attributed to i) weaker sales and margins from refining sub-segment, ii) lower share of associate results from Loders, which was offset by higher oleochemical earnings.

• Outlook guidance. Management expects a commendable performance for the final quarter on the back of increased CPO production and stronger CPO prices. On the downstream business, refining and fractionation margins have turned positive due to the high CPO export duty and encouraging demand for palm oil as a substitute for sunflower oil. Despite elevated raw material price and high energy cost, oleochemical sub-segment is expected to remain healthy due to the tight supply of product availability in the market Lastly, the performance of the specialty fats sub-segment including Bunge Loders Croklaan is expected to be good on the back of favourable demand and strong supply chain capability despite challenging operating environment due to high energy cost and the pandemic-related lockdown in certain parts of China.

Source: PublicInvest Research - 23 May 2022