Kenanga Research said IOI Corp had indicated it should enjoy CPO prices of “more than RM4,200 per tonne for the next three months”.
PETALING JAYA: Integrated palm oil group IOI Corp Bhd
’s upstream earnings are expected to remain stable in the second half its financial year ending June, 2025 (2H25) on the back of high crude palm oil (CPO) prices and better production growth in the last quarter.
Most research houses are positive about the group’s prospects given its latest 1H25 results, which met expectations.
Kenanga Research said IOI Corp had indicated it should enjoy CPO prices of “more than RM4,200 per tonne for the next three months”.
Although the national minimum wage rose in February, other input costs such as fertilisers looked to be moving sideways with palm kernel prices staying robust. Overall production cost should stay muted, the research house said.
“We are nudging up our CPO price assumption for IOI Corp’s financial year 2025 (FY25) from RM4,100 per tonne to RM4,200, but maintain RM4,100 per tonne for FY26,” Kenanga Research said.
Meanwhile, the recovery in downstream operations has been slower than expected with margins for refining and basic oleochemicals slated to remain weak even if demand inches up
The company’s specialty edible oils and fats segment is expected to fare better even though US tariffs may slow exports, added Kenanga Research.
The research house said, looking ahead, IOI Corp intends to complement its palm oil-based oleochemicals with coconut-based oleochemicals and would be expanding its coconut planting of 3,131ha in FY24 to rearch 5,000ha eventually.
It maintained an “outperform” call on IOI Corp with a target price of RM4.30.
The research house, which kept its FY25-FY26 forecast core earnings per share intact, said it likes IOI for its push to improve upstream productivity, focus on higher-margin speciality products downstream, and its long-term environmental, social and governance efforts.
MIDF Research, meanwhile, kept a buy call on the stock with an unchanged target price of RM4.42.
“With a low cost of production, estimated to be between RM1,900 and RM2,100 per tonne, compared with its peers, the company’s operating profit remains stable amid the erosion in the downstream subsegment,” MIDF Research said.
“Upstream operating profit is forecast to account for 68% to 70% of expected total operating profit in FY25-FY27. Therefore, any increase in the trajectory of CPO prices will significantly benefit IOI’s stock price,” the research house said.
It maintained its earnings estimates for IOI, since the latest earnings results came in at 57.5% of its forecast for FY25 and 48.7% of consensus forecasts.
“Earnings for the 2H25 are expected to be softer on lower fresh fruit bunch and CPO production in conjunction with pollination cycles,” the research house added.
Meanwhile, CGS International Research (CGSI Research) said while IOI Corp’s upstream operations would continue to perform in 2H25, this would be partially offset by the challenging downstream segment.
The group’s latest 1H25 earnings came in at 51% of the research house’s FY25 forecasts, in line with its expectations, thanks to strong upstream operations.
“We believe the outlook for downstream operations would remain challenging for 2H25, especially for its oleochemical sub-segment, mainly due to competitive pricing from Indonesia,” CGSI Research said.
However, the group’s margins for the speciality fats sub-segment, particularly for cocoa butter equivalents, continue to be stable, which would partially offset the weakness from its oleochemical operations.
That said, potential US tariffs may disrupt the import of raw materials into the United States and affect product margins.
The research house maintained a “reduce” call on the stock due to its subdued downstream operations, with an unchanged target price of RM3.25.
IOI Corp closed at RM3.86 yesterday.
