• Maintain BUY and SOP-based TP of MYR4.90, 29% upside and c.3% FY25F (Jun) yield. IOI Corp’s 1QFY25 core net profit came in broadly within expectations. Going forward, we expect the group’s upstream earnings to improve on the back of higher CPO prices, while downstream earnings will be supported by strong specialty fats contributions at the associate level. Valuation remains attractive – at 17x 2025F P/E, at the lower end of its peer range of 18-22x.

• 1QFY25 core earnings came in broadly in line with our and Street forecasts, at 22-24% of FY25F.

• IOI’s FFB output increased 3.5% YoY in 1QFY25, slightly lower than its guidance and our assumption of c.5% for FY25. In 4MFY24, this has moderated further to 1.1% YoY. IOI is keeping to its 5% FFB growth forecast for FY25. We make no changes to our FY25F-26F growth of 4-5% – we expect improvement in the coming quarters as Indonesian output recovers.

• IOI achieved a CPO price of MYR4,059/tonne (+7% YoY) in 1QFY25. It continues to sell forward 20-50% of its output three months ahead. We make no changes to our FY25 CPO price assumption of MYR4,100/tonne.

• Unit cost was around MYR2,100/tonne in 1QFY25 (-6.7% YoY), while fertiliser application in 1QFY25 is on schedule. This is in line with IOI’s targeted unit cost of production of MYR2,100/tonne for FY25F (-5% YoY), coming from improved productivity and lower fertiliser prices. IOI has locked in 1HFY25F requirements at a slightly lower price vs 2HFY24F.

• Downstream margin excluding associates fell into negative territory, at -0.7% in 1QFY25 from 0.7% in 1QFY24 and 1.6% in 4QFY24. The decline came from the negative margin at its refineries caused by trading losses, but offset by higher sales volume and margin at its oleochemical segment. While we expect the negative margin at its refinery segment to continue in 2QFY25, given the rising CPO price environment, there could be some improvement from the change in Malaysia’s export tax structure from 1 Nov 2024. Once CPO prices stabilise, refining margin should follow suit.

• Specialty fats associate’s profit jumped +42% QoQ and +37% YoY in 1QFY25. Going forward, this is expected to continue as IOI expects Bunge Loders Croklaan to post a record-high profit for the current financial year.

• Keep BUY, with relatively unchanged TP of MYR4.90, after updating IOI’s latest net debt position. We make no changes to our forecasts. Our SOP includes a 0% ESG discount, based on RHB’s score of 3.0. Valuation remains attractive – at 17x 2025F, at the lower end of its peer range of 18-22x.

Source: RHB Research - 27 Nov 2024