PETALING JAYA: IOI Corp Bhd’s outlook looks promising due to the seasonal recovery in production of palm oil along with Indonesia’s lift of its 25 days palm oil exports ban.
According to Kenanga Research, supply for the the world’s leading vegetable oils that includes palm and soyabean, is expected to pick up in the second half of this year.
The research house believes the pick up in supplies as well as Indonesia’s lift towards palm oil exports will bring down palm oil prices.
However, the research house noted several factors that will keep the prices firm including the worldwide tight market of oils and fats adding replenishment of inventories will more likely be in 2023.
Meanwhile, inventories of sizeable palm oil users such as China are believed to be low, according to the research house.
“Moreover, China has yet to fully reopen its economy and restart its post Covid-19 phase, so demand has yet to fully recover,” Kenanga Research said.
“Current high oil and gas prices suggest that demand for biofuels would likely rise, helping to absorb supply and cushion any sharp fall in the edible oil price,” it added.
Apart from stronger earnings from plantation, Kenanga Research expects resource based earnings from the group as demand from the economy reopening is likely to offset pending slowdown.
Strong contribution from the group’s associate, Bumitama Agri Ltd is also due, owing to its upstream palm oil operations.
The group’s financial position continued to improve with a decline in net gearing to 26% in the third quarter of its financial year 2022 with a net debt of RM2.75bil from 28% in the previous quarter.
Kenanga Research expects the group’s net gearing to improve further due to strong operating cash flows owing to the buoyant palm oil prices.
CGS-CIMB Research forecasts IOI Corp to deliver higher earnings for the next quarter or the final quarter quarter of its financial year, driven by seasonal higher output and stronger sales following Indonesia’s lift of palm oil exports ban.
However, CGS-CIMB said that the group will likely face foreign exchange loss on translation of its US$966.2mil (RM4.23bil) debt as the ringgit weakened against the greenback. This consecutively will dampen the group’s net profit for the 4Q22.
Hong Leong Investment Bank (HLIB) Research remains optimistic that the group’s performance registered in its previous quarter, will be sustained going into the 4Q22, adding that it might be stronger.
HLIB Research said the higher earnings will be supported by strong palm product prices and seasonal recover in fresh fruit bunches output, recovery in palm refining and fractionation margins, and healthy margins at oleochemical sub-segment due to expectations of the tightness of product availability in the oleochemical market to offset elevated feedstock and energy costs.
HLIB Research retained its “buy” call with a target price (TP) of RM5.07 per share while Kenanga Research and CGS-CIMB Research maintained their “market perform” and “hold” calls with a TP of RM 4.65 per share and RM4.56 per share, respectively.