• Maintain BUY, with new SOP-based MYR4.30 TP from MYR4.40, 16% upside and c.2% FY24F (Jun) yield. Although we expect FY24F to end the year flattish YoY, some improvement should be seen in FY25F as downstream earnings improve on global demand recovery. Valuation remains attractive – at 18.6x 2024F P/E – which is at the low end of its peer range of 20-25x.

• Slightly lower FY24F FFB growth outlook. IOI Corp recorded a +5% YTD- May (11MFY24) FFB output growth, lower than its original FY24F growth target of +7% due to flooding in January in Sabah. Although the weather has normalised, IOI is now expecting FY24F and FY25F FFB growth to be around +5%. As this is in line with our projected 4-5% growth for FY24F-25F, we make no changes to our forecasts.

• Production cost to remain flattish in FY25. 9MFY24 unit cost came in at MYR2,250/tonne, and the company expects FY24F cost to hover around the same level, translating to a 4% YoY reduction. IOI has secured its fertiliser requirements up to 1HFY25, at flattish prices YoY (vs FY24F fertiliser prices which were c.20-30% lower YoY) and is on track to achieve application target for FY24. As such, management also expects flattish CPO unit costs for FY25F. We adjust our cost forecasts upwards slightly to reflect this.

• Downstream margin to continue improving. Downstream operations are slowly showing margin improvement QoQ, driven by positive performances from the refinery and oleochemical segments in 3Q24. Utilisation rates for its refineries are however, still low, at 50%, while oleochemical utilisation rates are around 60% in 9M24. Going forward, while IOI expects the refinery subsegment to still continue facing stiff competition from Indonesia, the oleochemical subsegment is improving as demand picks up, coming from restocking activities. As such, management expects margin to improve to 3- 5% in 4QFY24 from 2-3% in 3QFY24. We make no changes to our more conservative margin assumptions of 1% for FY24F and 2-3% for FY25F-26F.

• Potential landbank monetisation? As of now, IOI is evaluating potential landbank monetisation for some of its aged plantation land areas for renewable energy development. Currently, IOI has c.24k ha of plantation landbank in Johor and 19k ha in Pahang. Some land that could be suitable would include 2-3k ha in Tangkak, Johor and 1k ha in Pahang – where the company could potentially rent land as well as operate solar assets – either on its own or with a JV partner.

• Maintain BUY, with slightly lower SOP-based TP of MYR4.30 (from MYR4.40) We tweak our forecasts down slightly by 3-4% for FY25F-26F, after raising unit costs. Our SOP includes a 0% ESG premium/discount based on IOI’s ESG score of 3.0.

Source: RHB Research - 17 Jul 2024