Expectation of IOI Corp: Operating Environment to Remain Challenging

Malaysia: IOI Corp Bhd forecasts that the foreign exchange (forex) rate will remain unstable over the next three months, but the chances of its strengthening further are lower due to the potential halt in the increase of US treasury rates. The exchange rate between the dollar and ringgit in May had strengthened to approximately 4.60 levels, influencing the forex translation gain/loss of the company's US dollar-denominated borrowings. IOI Corp also expects a challenging operating environment and a financially flat fourth quarter with downside bias during the current fiscal year.

IOI Corp's net profit for the third quarter ending on March 31, 2023, was RM197.40mil, a decrease from the previous corresponding period's RM411.20mil. Revenue also fell to RM2.66bil from RM4.10bil in the prior year. Basic earnings per share stood at 3.18 sen, compared to 6.62 sen previously. IOI Corp attributed the drop in earnings performance mainly to a reduced contribution from their plantation segment, offset by a higher contribution from their resource-based manufacturing segment.

IOI Corp recorded a net profit of RM1.08bil for the nine-month period ending on March 31, 2023, lower than RM1.18bil in the previous corresponding period. Similarly, revenue dropped to RM9.63bil compared to RM11.84bil a year earlier. IOI Corp noted that the crude Palm oil (CPO) spot price declined substantially in May to around RM3,500 - RM3,700 due to the projected seasonal growth in Palm fruit production and the larger-than-anticipated Soybean harvest. Additionally, the company stated that Malaysian Palm oil stock fell further at the end of April, reaching its lowest point in 13 months.

The crude Palm oil (CPO) price is anticipated to remain stable for the upcoming three months before the looming El Nino phenomenon affects Palm fruit production, most likely in the fourth quarter of this year. For the plantation segment, there is an expected increase in Palm fruit production in line with the seasonal trend, but the benefits will be countered by lower CPO prices.

IOI Corp reported that its refinery and commodity marketing sub-segment faced negative margins in refining and fractionation. The decline was attributed to the high CPO export duty in Indonesia, as well as the similar pricing of Palm oil and Soybean oil in crucial target markets. Global economic and trade growth have a substantial impact on the performance of the oleochemical sub-segment.

IOI Corp expects a decline in the performance of its oleochemical sub-segment during the fourth quarter of the current fiscal year, due to the gloomy economic outlook in the United States and most European countries, as well as geopolitical tensions between the US and China. Moreover, Malaysia has seen a significant increase in electricity costs for large manufacturers. The group stated that this is despite moderate raw material prices and China's economy exhibiting healthy growth in the present year.