• Maintain BUY (TP: RM4.50). IOI Corporation (IOI)'s 1QFY25 Core PATAMI of RM271.4mn were in line with both our and consensus full year forecast, accounting for 26% and 23%, respectively. Both revenue and core PBT increased by +21% and +7% YoY respectively, primarily driven by a higher Plantation segment profit of RM353.1mn (+12% YoY), partially offset the lower Resources-Based Manufacturing (RBM) segment of RM37.6mn (-33% YoY). The Plantation segment benefited from increased production of palm products, improved yields and higher realised prices (CPO: RM4,059/MT, +7.1% YoY; PK: RM2,699/MT, +28.5% YoY). Moving forward, we expect the group’s upstream earnings to improve due to higher CPO prices, while the downstream segment remains challenging, though we anticipated to see a gradual recovery especially from the specialty fats sub-segment. 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. On QoQ basis, IOI’s Core PBT rose to RM369.3mn (+11% QoQ), mainly supported by an increase in Plantation segment profit, up by 20% QoQ, with margins improved to 48.3% (+3.3 ppts QoQ). The Plantation segment benefited from a higher production of palm oil and increased PK realised prices (RM2,699/MT: +8.3% QoQ), couple with lower production costs, which helped offset the slightly decline in CPO realised prices (RM4,059/MT: -1.4% QoQ). However, the RBM segment profit dropped by +53% QoQ to RM37.6mn in 1QFY25, primarily due to lower margins from oleochemical and refining sub-segments.

• Earnings Revision. Maintain earnings forecast at this juncture

• Outlook. We remain positive on IOI’s FY25 earnings prospect, supported by strong upstream business, driven by anticipated higher CPO prices, stable production growth and better yield. As for downstream business, the outlook for the refinery remains subdued due to stiff competition from Indonesia. However, this could be partially cushioned by expected higher performance from the specialty fats sub-segment and gradual recovery in the oleochemical sub-segment, although at a slower pace.

Source: BIMB Securities Research - 27 Nov 2024