• Maintain BUY (TP: RM4.50). IOI Corporation (IOI)'s FY24 Core PATAMI of RM1.1bn was in line with both our and consensus full year forecast, accounting for 102% and 95%, respectively. Both revenue and core PBT dropped by -17% and -22% YoY respectively in FY24, mainly dragged by lower profit from the Resources-Based Manufacturing (RBM) segment, which declined by -61% YoY. This was attributed to lower margins in the oleochemical and refining sub-segments, driven by stiff competition and higher base demand in FY23 due to supply chain disruptions. Nevertheless, the Plantation segment improved slightly by 3% YoY, driven by higher OER and increased FFB production, which helped offset the drop in the average CPO price to RM3,856 (-6.4% YoY) in FY24. Moving forward, we expect the group’s upstream earnings to improve due to lower costs, while downstream earnings are anticipated to see a slower recovery with more significant improvements expected from 1HFY25F. We maintain a BUY call with a TP of RM4.50 (based on P/BV of 2.27x to BV/ share of RM1.99).

• Key highlights. IOI’s 4QFY24 Core PBT increased to RM346mn (+6% QoQ, +32% YoY), mainly due to higher profit from the Plantation segment, which rose to RM295mn (+19% QoQ, +17% YoY). The Plantation segment benefited from a higher realised ASP for CPO (RM4,118: +6.1% QoQ; +5.4% YoY) and PK (RM2,493: +20.3% QoQ; +18.8% YoY) as well as lower estates costs. The RBM segment profit improved by +131% YoY to RM80.3mn in 4QFY24, mainly supported by higher margins in the refining sub-segment and the share of associates’ results, which partially offset the lower margin from oleochemicals sub-segment.

• Outlook. Moving forward, stiff competition from other edible oils is expected to pressure CPO prices. However, the anticipated higher production, better yield, and favourable fertiliser prices could support IOI’s earnings growth. Additionally, in their downstream business, the outlook for refinery remains subdued due to stiff competition from Indonesia. However, this could be partially cushion by the expected higher performance from the specialty fats sub-segment and recovery in the oleochemical sub-segment, with better performance anticipated in 1HFY25F due to stock building from Europe ahead of EUDR implementation.

Source: BIMB Securities Research - 27 Aug 2024