The Star Online (225/05/2021) - PETALING JAYA: Rising crude palm oil (CPO) prices will continue to benefit IOI Corp Bhd, which is expected to see another strong performance for the fourth quarter of its financial year ending June 30,2021 (Q4’FY21).

The plantation conglomerate, which posted a significant jump in Q3’FY21 earnings on higher CPO prices, remains positive on the prospects of its upstream profit in the upcoming quarter due to the prevailing high CPO price.

However, its downstream division will likely be weighed down by higher feedstock costs, though this should be partly offset by strong demand from the personal hygiene sector.

Despite the positive outlook on the company, analysts in general are “neutral” on IOI Corp’s stock, which they consider are fairly valued at current stage.

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UOB Kay Hian Research raised its FY21 earnings forecast for IOI Corp to RM1.27bil from RM998mil previously after factoring in the one-off gain of RM268mil from the company’s associate Loders.

The brokerage kept its FY22-FY23 earnings forecasts for IOI Corp at RM1.13bil and RM1.16bil, respectively.

The research firm raised its target price for IOI Corp’s shares to RM4.50, based on FY22 price-earnings (PE) multiple of 24 times, from RM4.30 previously. It maintained “hold” on the counter.

“We expect the upstream operation to perform well in Q4’FY21 due to better production and higher average selling prices. Management said crop production was expected to recover in Q4’FY21, ” it said.

“The downstream operating margin is expected to decline in the upcoming quarters due to high raw material costs and price competition with its Indonesian peers.

Besides, the healthy sales volumes for oleochemicals from the personal hygiene and pharmaceutical sectors, the margin would be affected by increasing raw material costs, ” it added.

According to CGS-CIMB Research, IOI Corp would likely see sequentially stronger core net profit in Q4’FY21, driven by higher CPO prices and seasonally higher production.

“IOI Corp is positive on the prospects of its upstream profit in Q4’FY21 due to the current high CPO price.

“However, it expects its downstream division to be negatively affected by higher feedstock costs, though this should be partly offset by strong demand from the personal hygiene sector, ” the brokerage said.

CGS-CIMB Research lowered its sum-of-parts (SOP) based target price for IOI Corp to RM4.41 from RM4.68 previously after lowering the valuation for the company’s associates and resource-based manufacturing.

The brokerage reiterated “hold” on the counter.

Similarly, RHB Research also cut its SOP-based target price for IOI Corp to RM4.05 from RM4.25 previously, while maintaining its “neutral” stance on the counter.

The brokerage said IOI Corp’s valuation is relatively fair at the current juncture, trading at 25 times FY22 earnings, in line with its peer range of 23 times-28 times.

IOI’s net profit soared to RM401.3mil in Q3’FY21 from RM100,000 in the corresponding quarter last year, while revenue grew 41% to RM2.86bil from RM2.03bil previously.

For the nine months to March 2021, its net profit jumped almost three-fold to RM1.03bil from RM362.6mil in the corresponding period last year, while cumulative revenue grew 35% to RM7.79bil from RM5.76bil.

For Q3’FY21, IOI posted average CPO and palm kernel prices at RM3,211 and RM2,616 respectively, up from RM2,704 and RM1,688 in the corresponding quarter last year.

Read more at https://www.thestar.com.my/business/business-news/2021/05/25/upstream-operations-set-to-boost-earnings