• Maintain BUY, with new SOP-based TP of MYR4.50 from MYR4.45, 19% upside and c.3% FY25F (Jun) yield. IOI Corp’s FY24 core net profit was within our, but below consensus estimates. For FY25, we expect its upstream earnings to improve on the back of lower costs, while downstream earnings should see improvements from the oleochemical and specialty fats sub- segments. Its valuation remains attractive – at 18x 2025F P/E – which is at the lower end of its peer range of 18-22x.

• FY24 core earnings was in line with our, but below Street forecasts, at 96% and 94%. 4QFY24 core net profit rose 7% QoQ, bringing FY24 core net profit to a 26% decline YoY. IOI declared a 5 sen DPS in 4Q, bringing FY24 DPS to 9.5 sen, a 53% payout implying a yield of 2.4%.

• FFB output rose by 4.2% YoY in 4QFY24, bringing FY24 production to +4.4%, close to our 5% assumption, but below management’s guidance of 7% for FY24. YTD-1MFY25, IOI recorded FFB growth of 7.9% YoY. While we await guidance for FY25 FFB growth at its upcoming analyst briefing, we project FFB growth of 4-5% for FY25-26.

• Estimated unit costs fell by around 15-20% YoY in FY24, due to improved FFB output and lower fertiliser costs (-20% YoY in FY24). For FY24, IOI was expecting unit costs to decline by 4-5% YoY to MYR2,200/tonne, while for FY25, IOI expects unit costs to continue its downward trend.

• Downstream margin improved significantly QoQ to 7.7% in 4Q24 (from 2.3% in 4QFY24, bringing the FY24 margin to 3.2% (from 5.9% in FY23). The QoQ increase was due to a higher margin from the refinery sub-segment, partially offset by a lower margin from the oleochemical sub-segment, while the YoY decline came from the lower margins of its refinery and oleochemical sub-segments. We continued to see sequential improvements at its specialty fats associate, as profit rose 17% QoQ, driven by its North American business and improving demand from Europe. Going forward, while the refinery margin may remain relatively subdued, IOI expects improvements in demand from its oleochemical sub-segment in 1HFY25, due to stock building in the EU ahead of the EU Deforestation Regulation (EUDR) implementation at end-2024. We keep our margin assumptions at 2-4% for FY25-27.

• Keep BUY, with slightly higher SOP-based TP of MYR4.50. Earnings are relatively unchanged after imputing our latest forex assumptions and updating associate earnings estimates. We introduce FY27F earnings. Our SOP has a 0% ESG premium/discount built in, based on IOI’s ESG score of 3.0, and includes its updated net debt position. Its valuation remains attractive, at 18x 2025F P/E – which is at the lower end of its peer range of 18-22x.

Source: RHB Research - 27 Aug 2024