KUALA LUMPUR: IOI Corporation may not fully benefit from the recent spike in crude palm oil (CPO) price in 1QFY21E due to the usual one-month forward sales typical of integrated players, Maybank Investment Bank Research says.
In its research note issued on Monday, it said however the 1Q headline profits may get a boost from forex gain on its US debts.
“Ahead of IOI’s upcoming 1QFY21 results release, we raise our FY21-22E EPSs by +13%/+5% following our raised industry-wide CPO ASP forecasts.
“With that, we upgrade IOI to Hold (from Sell) with a new target price of RM4.84 (from RM4.27) on unchanged 31 times FY21E price-to-earnings ratio (PER) peg (its historical five-year mean), ” it said.
Maybank Research estimates 1QFY21E core net profit at RM240mil (+22% YoY, -1% QoQ) for its 1QFY21E core net profit (before forex translation gains and any fair value gains/losses on derivative FI).
However, it pointed out IOI may not fully benefit from the recent spike in CPO average selling price in 1QFY21E of RM2,771/t (+37% YoY, +22% QoQ) due to the usual one month forward sales typical of integrated players (that is time-lag).
“We estimate IOI’s 1QFY21E CPO average selling price at RM2,600/t (+29% YoY, +10% QoQ). As for fresh fruit bunches output, it posted a +9.6% YoY growth (+1.5% QoQ) for 1QFY21.
“Anticipating flat YoY FFB output growth for FY21E, IOI posted a relatively good +7% YoY growth for 4MFY21 (per Bursa announcement).
“Nonetheless, IOI is guiding for a flat YoY FFB output for FY21E (in line with the research house’s forecast) as it plans to accelerate replanting in FY21E, targeting 12,000 ha or 6.7% of total oil palm planted area.
“Replanting activities will probably hasten in 2HFY21 during the drier months, ” it said.
Maybank Research recently raised its 2020/2021 industry-wide CPO average selling price forecasts to RM2,660/t (from RM2,400) and RM2,500/t (from RM2,400) respectively.
As it raised its CPO average selling price for FY21E, it also trimmed its FY21E resource-based manufacturing EBITDA margin to 4.2% (from 4.6%) as the increase in CPO and PK prices (that is downstream feedstocks) will likely hurt margins. Overall, its FY21E-22E EPSs are revised by +13%/+5%.
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