Projecting better 4Q due to higher output
? IOI Corp’s 9MFY22 core net profit was in line with our estimate but above
consensus.
? Plantation earnings were above forecasts but refining margins were below.
? We project IOI Corp to post stronger qoq earnings in 4Q, driven by
seasonally higher output and better refining margins. Reiterate Hold.
9MFY22 core net profit in line with our estimate, above consensus
IOI Corp’s 9MFY6/22 core net profit (excluding non-core items like forex gain/loss, fair
value derivatives gain/loss, biological gain/loss and other one-off gain/losses) jumped 94%
yoy to RM1,333m, driven by higher plantation earnings. The result was in line with our fullyear estimate but above Bloomberg consensus, at 74% and 79%, respectively. 3QFY22
core net profit rose 78% yoy, thanks to higher CPO price. However, it fell 26% qoq to
RM443m due to lower FFB output and refining margins. The reported net profit for 3QFY22
was above core as forex gain of RM46.4m and fv gain on bio assets of RM18m more than
offset fv derivatives losses of RM17m and net inventory writedown of RM20.4m.
Higher plantation profit more than offset weaker refining margin
Plantation EBIT (before FV adjustments) rose 255%/91% yoy in 3Q/9MFY22 to
RM416m/RM1,346m, thanks mainly to higher average CPO price achieved. The average
CPO price achieved for 3Q/9MFY22 of RM5,064/4,518 per tonne (+58%/56% yoy) was
slightly ahead of our previous CPO price forecast for FY22 of RM4,500/tonne. However,
3QFY22 average CPO price achieved of RM5,064/tonne was below MPOB’s average for
the same period of RM6,051/tonne due to forward sales. Resource-based manufacturing
EBIT (ex-associates and JV) fell 57% yoy in 3QFY22 due mainly to FV loss on derivatives
of RM17m in 3QFY22 (against FV gain on derivatives of RM43m in 3QFY21). Excluding
the FV gain/loss on derivatives, resource-based manufacturing EBIT fell 1% yoy and 50%
qoq in 3QFY22 due to lower sales volumes and refining profit. However, 9M22 resourcebased manufacturing profit before fv gain/loss on derivatives grew 59% due to higher oleo
profit. Associates’ earnings tumbled 76%/60% yoy in 3Q/9MFY22 as 3QFY21 recorded
RM267.9m in one-off gains from the sale of a refinery by Loders.
Reiterate Hold with SOP-based TP of RM4.56
IOI Corp expects CPO price to remain strong in the near term and for plantation and refining
margins to improve in 4QFY22F. We forecast IOI Corp to deliver higher qoq earnings,
driven by seasonally higher output and stronger sales volumes following Indonesia’s move
to ban exports of palm oil from 28 Apr to 23 May 22. However, the group is likely to report
forex loss on translation on its US$966.2m debt as the ringgit weakened from
US$4.20/US$1 as of 30 Mar 22 to RM4.38/US$1 currently. This will dampen reported net
profit for 4QFY22. We revise our FY22-24F earnings forecasts to reflect higher CPO prices
but lower downstream contributions. Reiterate Hold on IOI Corp as we see share price
supported by its attractive P/E of 15.3x for FY22F and dividend yield of 3.6%. Key upside
/downside risks are M&A activities and higher CPO price/lower output and higher costs