IOI's upstream earnings to ride on strong CPO prices
According to RHB Research, which met with IOI Corp's management recently, the outlook remains positive as upstream earnings will continue doing well on strong CPO prices. This is further supported by the group's embarking on new ventures to diversify its income streams. The brokerage 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, RHB Research noted that IOI achieved FFB growth of 1.3% year-on-year (y-o-y) in the financial year (FY) ended June 30, 2025, below its initial 3% target.
'While output saw a mini peak in April, IOI expects production to pick up again in July, with a bigger peak in August-September,' it said. For FY26, the group was targeting FFB output growth of 3-5% 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 expects FY25 costs to come in at around RM2,000-RM2,100 per tonne (flattish y-o-y),' 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 2-3% rise in costs could result from minimum wage adjustments and Employees Provident Fund contribution requirements.
On regulatory risks, RHB Research said IOI would face minimal impact from the government's 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 to IOI 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 landbanks in Malaysia and Indonesia and opportunities in specialty oleochemicals for the pharmaceutical and personal care sectors.
It also expressed excitement 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-RM50mil,' RHB Research said.
The group's diversification efforts extended to coconut plantations, where 3,500 hectares had already been planted, targeting 4,600 hectares in total. This business could bring in RM60mil-RM70mil in ebit at full maturity.
RHB Research reiterated its 'buy' call on IOI, maintaining a sum-of-parts-based target price of RM4.30 with a 2% environmental, social and governance premium.
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