KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) anticipates decent performance for IOI Corporation Bhd in the second half (2H) of the financial year 2023 (FY23) as the company has conservative fresh fruit bunch (FFB) output growth guidance due to recent heavy rainfall in the Southern region.
Based on IOI's virtual post-results briefing, the bank-backed research house said that IOI Corp's FFB output declined by 3.9 per cent to 1.66 million tonnes during seven months (7M) of the financial year 2023 (FY23) dragged mainly by the labour shortage, particularly during early-FY23.
"While labour conditions have improved since a few months ago, management remains conservative in its FFB output growth guidance.
"Besides, management shared that it takes time for FFB to yield to recover to pre-pandemic level, as it has to catch up on its manuring programme (which fell behind target during 1H FY23) and rehabilitation works," it said.
Meanwhile, HLIB Research said IOI Corp expects crude palm oil (CPO) production cost in FY23 to decline marginally from RM2,500 per metric tonne (mt) recorded in 1H FY23, on the back of lower maintenance expenses and fuel cost in 2H FY23, while labour and fertiliser costs remain sticky.
IOI Corp believes the crude palm oil (CPO) price will remain well supported at above RM4,000 per mt over the next few months.
"This will be underpinned by Indonesia's restrictive export policy, the easing of China's zero-Covid policy, and the drought in Argentina (which is expected to affect soybean supplies in Argentina).
"We maintain our 'Buy' rating on IOI with an unchanged target price of RM4.36," it added.