Investment Highlights

• We maintain HOLD on IOI Corporation with an unchanged fair value of RM4.10/share, based on FY25F PE of 18x, which is the 5-year average for large-cap planters. We attach a neutral 3-star ESG rating to IOI.

• IOI has declared a final gross DPS of 5 sen for 4QFY24, which brings total gross DPS to 9.5 sen for the full year (FY23: 11 sen). The gross DPS of 9.5 sen implies a FY24 yield of 2.5%.

• IOI’s FY24 core net profit of RM1.1bil (ex-unrealised net forex loss of RM18.9mil) was within our forecast and consensus estimates.

• IOI’s core net profit declined by 12.4% to RM1.1bil in FY24 due to a 52.3% decline in manufacturing earnings (including fair value changes and associates). The fall in manufacturing EBIT was partly compensated by a 5% rise in plantation earnings and a drop in the effective tax rate. IOI’s effective tax rate fell to 20.2% in FY24 from 26% in FY23 due to higher non-taxable income.

• IOI’s FFB production improved by 4.4% in FY24, which was the first increase after 5 years of declines. We attribute this to a recovery in FFB yields and higher number of estate workers. Average CPO price shrank by 6.4% to RM3,856/tonne in FY24 from RM4,118/tonne in FY23.

• IOI’s manufacturing division was affected by poor demand and selling prices for refined and oleochemical products. EBIT margin slipped to 3.6% in FY24 from 6.1% in FY23.

• On a quarterly basis, however, manufacturing EBIT climbed by 3-fold to RM142.2mil in 4QFY24 as demand recovered. EBIT margin expanded to 5.8% in 4QFY24 from 1.9% in 3QFY24.

• In its results announcement, IOI said that it expects higher demand from the EU, which is stocking up before the implementation of the EUDR (EU Deforestation Regulation) on 30 December 2024. However, outlook for the refining division remains subdued due to overcapacity in Indonesia.

• IOI is currently trading at a FY25F PE of 16.5x, which is slightly below its 2-year average of 18x.

Source: AmInvest Research - 27 Aug 2024