Analysts expect stronger 4Q earnings for IOI Corp, underpinned by higher CPO prices

Analysts expect stronger 4Q earnings for IOI Corp, underpinned by higher CPO prices
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KUALA LUMPUR (May 24): Analysts expect IOI Corp Bhd’s net profit for its fourth quarter ending June 30, 2021 (4QFY21) to be stronger, underpinned by higher crude palm oil (CPO) prices.

According to most analysts, IOI Corp's 3QFY21 core net profit of RM169.7 million and 9MFY21 core net profit of RM712.2 million were broadly within expectations.

CGS-CIMB’s analyst Ng Lee Fang said in a note today she expects sequentially stronger core net profit for IOI Corp in 4QFY21, driven by higher CPO prices and seasonally higher production.

According to her, IOI Corp’s management is positive on the prospects of its upstream profit in 4QFY21 due to the current high CPO price.

However, the management also 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.

“We maintain our earnings forecasts as we expect a stronger 4QFY21 on the back of higher CPO prices and production,” she said.

Ng nonetheless reiterated a "hold" call on the stock with a lower target price (TP) of RM4.41 as she sees the stock is fairly valued and is partly supported by the group’s share buyback activities.

Meanwhile, Hong Leong Investment Bank’s research analyst Chye Wen Fei also anticipated IOI Corp's 4QFY21 earnings to come in stronger, underpinned by higher CPO price, crop recovery and better performance at specialty fats associate.

Chye, however, maintained his core net profit forecasts on the company and "buy" rating with an unchanged TP of RM4.67.

Likewise, Kenanga Research’s analyst Adrian Kok said he expects a strong end to FY21 for IOI Corp as he anticipated higher CPO prices and production recovery.

Kok, however, maintained his earnings estimate on the company. He also maintained a "market perform" call on the stock and revised down its TP to RM4.20 from RM4.55, as he thinks IOI Corp is fairly valued.

Affin Hwang Capital’s analyst Nadia Aquidah raised her FY21/22 estimated core earnings per share for IOI Corp by 32.7%/12.9% mainly to take into account higher CPO average selling price assumptions of RM3,050 to RM2,750 per metric ton (MT) (from RM2,850 to RM2,550 per MT previously) and a higher contribution from associates.

“Despite raising our earnings forecasts and rolling forward our valuation horizon, our discounted cash flow-derived TP is lowered to RM4.65 (from RM4.82), as we apply a higher discount rate,” she said while maintaining her "buy" rating on IOI Corp.

At the time of writing, IOI Corp rose two sen or 0.49% to RM4.12, valuing the group at RM25.77 billion.

Lam Jian Wyn