CGS International
May 28, 2025
IOI Corporation: Strong Procurement Strategy Drives Malaysia’s Top Downstream Margin, but Competitive Pressures Persist
Executive Summary and Broker’s Position
IOI Corporation, a leading Malaysian agribusiness and plantation player, continues to outpace peers with its robust downstream procurement strategy, translating to the sector’s highest operating margin. Despite market headwinds—such as rising competition from Indonesian producers, elevated palm kernel (PK) prices, and softening demand—IOI’s diversified approach and focus on sustainability underpin resilient performance. CGS International upgrades IOI to “Hold” with a revised target price of RM3.50 as the outlook for FY26F is factored in.
Key Highlights
- IOI’s downstream margin is the highest among integrated Malaysian peers, attributed to strategic feedstock procurement and lower input prices.
- Short-term margin pressure is expected due to aggressive Indonesian competition, high PK prices, and subdued oleochemical demand.
- Recommendation upgraded to Hold; target price raised to RM3.50 (from RM3.25).
- Potential upside: surprise CPO price jumps or M&A activity. Downside risks: weaker-than-expected FFB production, regulatory shifts in Indonesia.
Financial Results and Performance Breakdown
Headline Financials (Jun-FY)
| Year |
Jun-23A |
Jun-24A |
Jun-25F |
Jun-26F |
Jun-27F |
| Revenue (RMm) |
11,584 |
9,604 |
15,351 |
16,110 |
16,882 |
| Operating EBITDA (RMm) |
2,092 |
1,558 |
1,972 |
2,080 |
2,160 |
| Net Profit (RMm) |
1,114 |
1,109 |
1,329 |
1,416 |
1,482 |
| Core EPS (RM) |
0.24 |
0.18 |
0.21 |
0.23 |
0.24 |
| Dividend (RM) |
0.15 |
0.09 |
0.11 |
0.11 |
0.12 |
| Dividend Yield (%) |
4.03 |
2.40 |
2.88 |
3.07 |
3.21 |
Recent Results Recap
- 3QFY25 core net profit: RM244m (-34% qoq, +0.4% yoy).
- 9MFY25 core net profit: RM917m (+7% yoy), accounting for 69% of full-year estimate—inline with expectations.
- QoQ profit drop mainly driven by lower CPO production and sales in plantations, partially offset by higher downstream margins.
- YoY earnings growth attributable to higher CPO average selling price (ASP).
Segmental Performance Details
| Segment |
2QFY25 |
3QFY25 |
QoQ % Chg |
YoY % Chg |
9MFY25 |
YoY % Chg |
| Plantation Revenue (RMm) |
890.8 |
663.1 |
-25.6 |
-1.6 |
2,285.4 |
8.6 |
| Resource-based Manufacturing Revenue (RMm) |
2,845.3 |
2,614.8 |
-8.1 |
11.0 |
8,021.0 |
19.2 |
| Plantation EBIT Margin (%) |
47.1 |
39.8 |
-7.3 |
7.6 |
43.1 |
8.0 |
| Resource-based Manufacturing EBIT Margin (%) |
0.2 |
2.4 |
+2.2 |
0.1 |
0.6 |
-1.2 |
Downstream Margin: Sector-Leading Performance
- 3QFY25 downstream operating margin surged to 2.4% (from 0.2% in 2QFY25), outperforming all Malaysian integrated peers.
- Margin expansion credited to lower feedstock costs and IOI’s superior procurement approach.
- Malaysian downstream margin is expected to taper in 4QFY25 amid stiffer Indonesian competition, high PK prices, and subdued oleochemical demand.
- Specialty fats (via Bunge Loders Croklaan) expected to sustain robust margins, especially in cocoa butter equivalents.
Upstream Segment: Weathering Price Weakness
- CPO price has dropped 21% since April 2025, but improved weather and the end of the low production cycle should boost fruit bunch (FFB) and CPO output.
- This increase in production is expected to partially offset downward price pressure in upstream earnings.
Peer Comparison: How IOI Stacks Up
| Company |
Ticker |
Rating |
Price (RM) |
Target Price (RM) |
Market Cap (US\$m) |
P/E CY25F |
P/E CY26F |
EPS CAGR (2y, %) |
P/BV CY25F |
P/BV CY26F |
ROE CY26F (%) |
Div Yield CY26F (%) |
| SD Guthrie Bhd |
SDG MK |
Add |
4.63 |
5.20 |
7,493 |
20.7 |
20.9 |
40.0 |
1.53 |
1.48 |
7.0 |
2.4 |
| Kuala Lumpur Kepong |
KLK MK |
Hold |
19.62 |
19.50 |
5,113 |
46.2 |
17.7 |
35.5 |
1.54 |
1.49 |
8.7 |
3.2 |
| IOI Corporation |
IOI MK |
Hold |
3.68 |
3.50 |
5,342 |
18.5 |
16.5 |
6.5 |
1.89 |
1.79 |
10.8 |
3.0 |
| Genting Plantations |
GENP MK |
Hold |
4.86 |
5.90 |
1,020 |
14.4 |
14.7 |
12.7 |
0.81 |
0.81 |
5.5 |
4.1 |
| Hap Seng Plantations |
HAPL MK |
Add |
1.86 |
2.25 |
348 |
11.2 |
10.6 |
18.7 |
0.73 |
0.70 |
6.7 |
5.7 |
| Ta Ann |
TAH MK |
Add |
4.00 |
5.50 |
412 |
9.8 |
9.4 |
2.3 |
0.95 |
0.82 |
9.1 |
6.4 |
Malaysia average: P/E 20.1x (CY25F), 15.0x (CY26F); EPS CAGR 19.3%; P/BV 1.24 (CY25F), 1.18 (CY26F); ROE 8.0% (CY26F); Dividend Yield 4.1% (CY26F)
ESG: IOI’s Sustainability Commitments and Performance
- IOI Corp scored B- in LSEG’s ESG Combined Score (B+ Environment, C+ Social, C+ Governance).
- Top 25% by ESG Ratings in FBM Emas, member of FTSE4Good Bursa Malaysia Index, and RSPO (Roundtable on Sustainable Palm Oil).
- 96% of estates and all 14 Malaysian mills RSPO certified; target 100% certification by 2023.
- SPOTT assessment: 84.1% (ranked 18th of 96 global palm oil peers).
- Five-year strategic priorities: focus on value-added, yield-improving, and diversified palm products with sustainability at the core.
- Long-term Net Zero commitment by 2040; climate adaptation, biodiversity, and workforce upskilling initiatives underway.
Operational & Financial Metrics: By the Numbers
- ROE projected stable at 11.1% (FY27F), supported by efficient capital management.
- Net gearing declining from 12.5% (FY23A) to 1.6% (FY27F), reflecting improving financial health.
- Average FFB yield expected to increase from 18.7 tonnes/ha (FY23A) to 21.0 tonnes/ha (FY27F).
- CPO price assumption: RM3,920.8/tonne (FY25F-FY27F).
Cash Flow and Balance Sheet Snapshot (Jun-FY)
| Year |
Jun-23A |
Jun-24A |
Jun-25F |
Jun-26F |
Jun-27F |
| Operating Cash Flow (RMm) |
2,073 |
1,232 |
1,634 |
1,555 |
1,628 |
| Free Cash Flow to Equity (RMm) |
577 |
547 |
978 |
906 |
986 |
| Total Cash & Equivalents (RMm) |
2,302 |
2,255 |
2,568 |
2,766 |
3,011 |
| Total Debt (RMm) |
3,758 |
3,705 |
3,542 |
3,386 |
3,237 |
Valuation: Sum-of-Parts Target Price
- Plantations: RM17,055.6m (19x forward P/E)
- Manufacturing: RM4,064.1m (12x forward P/E)
- Bumitama Agri (32.1% holding): RM1,363.8m
- Net Debt: -RM692.5m
- Total SOP: RM21,791m
- No. of shares: 6,203.7m
- SOP per share: RM3.50
Shareholding and Market Activity
- Major shareholders: Progressive Holdings (50.5%), EPF (13.0%), PNB (7.0%)
- Market cap: RM23,078m (US\$5,445m)
- Free float: 20.1%
- Average daily turnover: RM6.81m (US\$1.55m)
Stock Recommendation and Outlook
- Current share price: RM3.72
- Target price: RM3.50
- Consensus: Buy 9, Hold 9, Sell 1
- Forecast total return: -5.9% (Hold)
- Key catalysts: CPO price volatility, M&A developments, regulatory changes, FFB output surprises.
Conclusion: Strategic Strengths and Sector Position
IOI Corporation’s operational excellence, especially in downstream margin management, sets it apart in the Malaysian plantation sector. While near-term pressures persist from Indonesian competitors and oleochemical weakness, the group’s diversified, sustainability-driven approach and focus on efficiency bode well for long-term resilience. Investors should watch for price and policy shifts that could quickly change the sector’s outlook.
Stock Ratings Definitions
- Add: Expected total return exceeds 10% in the next 12 months.
- Hold: Expected total return between 0% and +10% in the next 12 months.
- Reduce: Expected total return below 0% in the next 12 months.
