Review

• IOI Corporation’s (IOI) 1QFY25 results came in within expectations. Excluding the impact of forex and other non-core items, 1QFY25 core net profit rose 7.2% YoY to RM303.3mn, supported by 21.3% increase in revenue to RM2.7bn.

• The stronger performance of the plantation segment successfully offset the weaker contribution from the downstream division.

• Plantation: Operating profit for 1QFY25 climbed 31.5% YoY to RM300.8mn, driven by a 3.5% increase in FFB production and higher palm oil prices. CPO prices rose 7.1% YoY to RM4,059/tonne, while PK prices surged 28.5% YoY to RM2,699/tonne.

• Manufacturing: For 1QFY25, this segment posted an operating loss of RM17.3mn, a reversal from RM15.3mn profit recorded in the same period last year. Excluding non-core items, the group would have incurred a core net loss of RM87.6mn, compared to RM14mn profit previously. The underperformance was primarily attributed to reduced sales volume and narrower margins in the refining sub-segment.

• No dividend was declared for the quarter under review.

Impact

• No change to our earnings forecasts.

Outlook

• Management expects CPO prices to stay high in the next three months, driven by tighter supplies during the low crop season. However, the high prices and the premium over soybean oil may dampen demand, exerting downward pressure on CPO exports.

• FFB production is expected to grow moderately compared to the previous financial year, despite the accelerated replanting program in Sabah. This growth will be supported by ongoing yield improvements in Peninsular Malaysia and higher FFB output from maturing young palms in Sabah and Indonesia.

• Meanwhile, high refined product prices, along with ongoing uncertainties in global economic growth and escalating geopolitical tensions, are expected to continue affecting market demand for refined and oleochemical products.

• On a positive note, management highlighted that the lease for the Rotterdam refinery, which supplies raw materials to Bunge Loders Croklaan’s (BLC) plant in Amsterdam, has been successfully renewed for another year. This renewal aligns with the expected completion of BLC's new bulk refinery plant complex in Amsterdam by early 2026.

Valuation

• Maintain BUY on IOI with an unchanged target price of RM4.17/share, based on a CY25 PER of 18x and an ESG premium of 3%.

Source: TA Research - 27 Nov 2024