KEY INVESTMENT HIGHLIGHTS

• Upstream; FFB and CPO production remain intact
• Downstream profitability softened
• Earnings estimates; tweaked lower
• Maintain BUY call with a revised TP of RM4.42

Within expectations. IOI's 1QFY25 core PATAMI inched to RM299.7m (+3.4%yoy), on higher upstream contribution on elevated CPO price realized. Operating profit somehow, maintains its stability at RM277.8m (+11.7%yoy), despite negative contribution from RBM subsegment, thanks to the decent FFB and CPO output, during the peak seasonality.

Overall, the results came in within ours and consensus expectations at 25%/23% of full-year estimates.

Plantation. During the quarter, the segment continues generated solid sales and profitability amounted RM731.9m (+7.8yoy) and RM353.1m (+12.3yoy), respectively. The higher profit recorded was due to higher CPO and PK prices realized amid decent FFB and CPO production together with reduced all-in cost of production.

Operationally, the total planted area now reduced by -1.1%yoy to 171,719 ha, with the harvestable area of 141,529 82% (vs 1Q24: 84%) due to replanting program carried away. The FFB and CPO production, on the other hand, grew higher to approximately 760,000 Mt (+3.5%yoy) and 166,000 Mt (+0.5%yoy), respectively, riding on high crop seasonality. Notably, all-in cost of production continues moderated to estimated RM2,250/Mt (-6.5%yoy), on reduction in fertilizer price components and stabilized OER of 21.35%.

RBM. Smaller profit was registered, at RM37.6m (-33.3%yoy), mainly dragged by lower sales volume and margins from refining sub-segment, mitigated by higher sales volume and margins from oleochemical sub- segment and higher share of associate results.

Earnings Forecast. We are tweaking earnings estimates by -3%yoy/- 5%yoy lower for FY25-FY26F and a +5%yoy higher for FY27F after considering newly CPO price targets of RM4,300Mt/ RM4000Mt/ RM3900/Mt as well lower FFB yield, FFB and CPO Production, OER due to biological tree rest conditions and upcoming El-Nino (high chance to start in May FY25) impacts.

Recommendation. We are maintaining our BUY call with a revised TP of RM4.42 as we rollover valuation base year to FY26F EPS of 20.5sen pegged to a PER of 21.6x, at 5-year historical mean. With a low cost of production among its peers, circa RM2,300-2,600/Mt, the company's operating profit remains stable amid the uncertainty in the downstream subsegment. Note that upstream operating profit accounts for 68-70% of the total group operating profit in FY25-27F. Therefore, any increase in the trajectory of CPO prices will significantly benefit the company.

Source: MIDF Research - 27 Nov 2024