High CPO prices to lift IOI Corp earnings
PETALING JAYA: IOI Corp Bhd is expected to deliver stronger earnings in the coming financial years as it benefits from elevated crude palm oil (CPO) prices while pursuing fresh income streams through new ventures as well as mergers and acquisitions.
The group is targeting fresh fruit bunch (FFB) output growth and cost containment measures that could support margins going forward.
According to RHB Research, which met with IOI Corp's management recently, the company's outlook remains positive as upstream earnings will continue to do well on strong CPO prices.
This is further supported by the group's embarking on new ventures to diversify its income streams.
The research house said the group's valuation was still appealing, trading at 17.5 times its forecast price-earnings ratio for 2026, at the lower end of the 17 to 22 times range of peers.
On production, it noted that IOI Corp achieved FFB growth of 1.3% year-on-year (y-o-y) in the financial year ended June 30, 2025 (FY25) – below its initial 3% target.
'While output saw a mini peak in April, IOI Corp expects production to pick up in July, with a bigger peak in the August to September period,' it said.
For FY26, the group was targeting FFB output growth of 3% to 5% on the back of better weather conditions in line with RHB Research's 4% forecast.
The company was also expected to keep unit costs in check.
'IOI Corp expects FY25 costs to come in at around RM2,000 to RM2,100 per tonne,' RHB Research said, adding that it had already secured fertiliser requirements for the first half of FY26 at flat prices y-o-y.
However, a 2% to 3% rise in costs could result from minimum wage adjustments and Employees Provident Fund contribution requirements.
On regulatory risks, RHB Research said IOI Corp would face minimal impact from the government's expanded sales and service tax (SST) and US tariffs.
The group had obtained SST exemptions for its oleochemicals operations and over 90% of its trading volumes comprised CPO and palm olein, which were not subjected to the tax.
'There is no significant impact as 90% of Malaysian CPO production is exported to the European Union as certified products, with less than 2% exported to the United States,' it added.
Looking ahead, IOI Corp was actively seeking brownfield upstream land bank in Malaysia and Indonesia and opportunities in specialty oleochemicals for the pharmaceutical and personal care sectors.
It also expressed optimism over its 33% stake in a pulp and paper joint venture with Nextgreen Global Bhd to turn oil palm empty fruit bunches into renewable products.
'The first phase of the plant (150,000 tonnes) should be operational by 2028, with potential earnings before interest and tax (ebit) contribution of RM30mil to RM50mil,' RHB Research said.
The group's diversification efforts extended to coconut plantations, where 3,500ha had already been planted, targeting 4,600ha in total.
This business could bring in RM60mil to RM70mil in ebit at full maturity.
RHB Research reiterated its 'buy' call on IOI Corp, maintaining a sum-of-parts-based target price of RM4.30 with a 2% environmental, social and governance premium.
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