PETALING JAYA: IOI Corp Bhd
is poised to post sequentially stronger earnings quarter-on-quarter (q-o-q) for the first quarter of financial year 2025 (1Q25), says UOB Kay Hian (UOBKH) Research.
This will be underpinned by the group’s upstream plantation segment’s seasonal ramp-up in fresh fruit bunch (FFB) output, while monthly data suggest production may have peaked in September.
Earnings in the subsequent quarter should be supported by higher crude palm oil (CPO) market prices, despite the potential production slowdown, said the research house in its 1Q25 results preview.
IOI is expected to release its 1Q25 results on Nov 26. The company delivered a core net profit (adjusted for one-offs including foreign-exchange or forex balance sheet losses) of RM376.8mil in 4Q24.
For 1Q25, UOBKH Research said, “We project earnings to come in at RM400mil to RM420mil (a rise of 6% to 11% q-o-q), mainly underpinned by its upstream plantation segment’s 18% q-o-q rise in FFB output versus 4Q25, while potentially partly offset by a normalisation in associate contributions as well as forex impact from a weaker US dollar.”
The research house also anticipates earnings to grow year-on-year (1Q24 core profit: RM290mil), with FFB output also jumping 2.5% y-o-y versus 1Q24.
While quarterly production maintained a positive trend, UOBKH Research observed a drop in monthly production growth numbers over July to September, rising month-on-month (m-o-m) by 8% and 12.5% over the first two months, but only by 5% m-o-m in September.
Overall, the group’s production numbers appeared to align with the country’s industry production trend, as observed from the Malaysian Palm Oil Board’s data, particularly since the majority of IOI’s oil palm estates are in Malaysia.
Despite the possibility of recording weaker output q-o-q in 2Q25, UOBKH Research believes that IOI’s earnings would likely be well supported by a sequential rise in average CPO prices, with spot prices for CPO having risen to around RM4,600 per tonne (1Q25 spot price average: RM4,000 per tonne).
At the same time, palm kernel prices have also jumped sharply in the past few months, which should serve to shore up the group’s upstream plantation profits as well.
Meanwhile, on Budget 2025’s minimum wage hike from RM1,500 per month to RM1,700 per month, UOBKH Research also believes the impact on IOI would be less significant.
“We understand large planters have put in place a wage revision framework over the last few years to align with the anticipated policy changes.”
On the other hand, changes to the export duty and windfall profit levy system are seen as a slight negative for Malaysia-centric planters (RM40 to RM50 net increase in charges per CPO tonne).
The resulting impact on IOI would also be partly mitigated by its downstream operations, which should benefit from cheaper feedstock prices under the new policies, the research house noted.
All in, the earnings impact for financial year 2025 (FY25) arising from these changes could come in at less than 5%, according to UOBKH Research’s back-of-the-envelope calculations.
The research house also made no changes to its current earnings estimates, while assuming the group’s FFB production growth of 4.6%, 5.9% and 5.5% for FY25, FY26 and FY27, respectively, and lower production costs y-o-y versus FY24. It maintained a “hold” call on the stock with an unchanged target price of RM3.60 per share.
