MIDF noted that 7 companies out of 9 stocks came in within expectations, with 1 registered below and 1 above namely FGV and IOICorp. Sector earnings wrapped to RM976.9m (-41.8%qoq, +10.0%yoy), attributed to the higher contributions from SD Guthrie and IOI Corp, which hold 23% and 25% weightage, respectively. FY24-25F’s earnings were adjusted lower
following earnings adjustment of FGV. Key factors that influenced earnings volatility during the period are 1) low crops seasonality due to pollination months, 2) long dry weather days due to mild EL-Niño that have peaked in April, 3) elevated CPO price traded, hovering around RM3,600-4,200/Mt.
The house maintains a NEUTRAL call on the sector, and in summary opines that companies’ top-line to continue uptick in 1Q-2QCY24, in line with elevated average CPO price traded, mostly influenced by low crop seasonality and mild El-Niño event.
MIDF deems it is the best time to lock the profits for top picks such as Ta Ann as it anticipates the increase in share price will gradually decline towards the end of the quarter, prompting shift towards a trading strategy, of which it had recently downgraded Ta Ann to NEUTRAL, with unchanged TP of RM4.10, at current juncture. IOI Corp remains a top pick for the sector. IOI Corp’s outlook remains steady and is well supported by both upstream and downstream profitability. Its refinery and oleo plant are well insulated from high input costs due to their strategic locations, unlike their peers operating in Europe, which are impacted by high production costs.
The house keeps its NEUTRAL call for the sector at this juncture with average CPO target price of RM3,600/Mt for the whole year
