KEY INVESTMENT HIGHLIGHTS

• Upstream; FFB and CPO production remain intact
• Downstream profitability bounces stronger
• Earnings estimates; maintained
• Maintain BUY call with an unchanged TP of RM4.50

Above expectations. IOI's 4QFY24 core PATAMI jumped to RM257.6m (+9.2%yoy) brings FY24 to RM1.1b (-24.3%yoy) which is above/below ours/consensus expectations at 110%/89% of full-year estimates.

Operating profit maintained its stability at RM273.8m (+51.4%yoy), with the margin inched to 11% (+1.5pts) level, thanks to the elevated CPO prices were traded, aided by decent FFB and CPO output, during the dry weather days.

Plantation. During the quarter, the segment continued to generate solid sales and operating profit amounting to RM655.9m (+12.1yoy) and RM258.6m (+47.4yoy), respectively. The higher profit reported was due to higher CPO and PK prices realised amid decent FFB production (4QFY24 - 0.65m Mt vs 4QFY23 - 0.62m Mt) as well as lower estate costs registered.

Operationally, the total planted area were reduced by -1.0%yoy to 172,107 ha due to a replanting program carried out, but the harvestable area remained intact at 144,959 85% (vs 4Q23: 83%). The FFB and CPO production, on the other hand, grew higher to 644,987Mt (+4.2%yoy) and 142,666Mt (+3.8%yoy) respectively, as high crop seasonality kicked-in, leaving OER strengthened to 21.77% on better FFB evacuation activities due to dry weather. Notably, all-in cost of production softened to approximately RM2,300/Mt (-12.3%yoy), on reduced fertilizer price components.

RBM. Its profit continue bounce, grew by double digit growth, to RM38.5m (>100%yoy), mainly driven by higher margins from refining sub-segment as well as higher share of associates results, partially offset by lower margins from oleochemical sub-segment.

Earnings Forecast. We kept our earnings estimates at this juncture pending more update on the upcoming company briefing.

Recommendation. We are maintaining our BUY call with a TP of RM4.50 pegged to a PE valuation of 28.1x nearly 5-year historical +1SD based on FY25F EPS of 16.0sen. With a low cost of production among its peers, circa RM2,400-2,600/Mt, the company's operating profit remains stable amid the uncertainty in the downstream subsegment. Note that upstream operating profit accounts for 60-75% of the total group operating profit in FY23-24F. Therefore, any increase in the trajectory of CPO prices will significantly benefit the company.

Source: MIDF Research - 27 Aug 2024