• Maintain BUY (TP: RM4.50). IOI Corporation (IOI)'s 9MFY24 core PATAMI of RM836.2mn was in line with our expectations but slightly below consensus full-year forecasts, at 76% and 67%, respectively. IOI’s 3QFY24 core PATAMI increased by 6% YoY to RM264.6mn, primarily due to higher profit from the Plantation segment, which rose to RM248.6mnn (+10% YoY). This increase mitigated the lower profit from the Resources-Based Manufacturing (RBM) segment, which was only RM101.7mn (-8% YoY). The improvement in the Plantation segment was driven by higher OER, increased CPO production, better labour productivity and improved manuring activities. These helped offset the slight drop in the average CPO price to RM3,882 (-1.2% YoY) in 3QFY24. 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. Although IOI’s 3QFY24 Plantation segment benefited from higher realised CPO prices QoQ, its performance was affected by seasonally lower FFB and CPO production, resulting in a dropped in revenue by -10% QoQ (Refer to Table 2). However, cumulatively for 9MFY24, there was higher FFB and CPO output, supported by improved yield (+3.8% YoY) and OER (+5.1% YoY). The RBM segment, despite experiencing relatively low sales and profit margins compared to the previous year, showed a positive rebound in 3QFY24 with profit growing by +90% QoQ, thanks to higher contributions from associates and the oleochemical sub-segment.

• Earnings Revision. No changes in earnings forecast.

• Outlook. Moving forward, stiff competition from other edible oils is expected to pressure CPO prices. However, the anticipated higher production, better yield, and lower fertiliser prices could support IOI’s earnings growth. Management indicated that CPO production costs are likely to decline further in 2HFY24 due to lower fertiliser prices. Additionally, in their downstream business, the strong performance of the specialty fats segment will help cushion the weak near-term prospects in the refining and oleochemical sub-segments.

Source: BIMB Securities Research - 27 May 2024