CGS International
May 28, 2025
IOI Corporation: Margin Leader in Malaysian Palm Oil Faces Market Headwinds and ESG Transformation
Overview: IOI Corporation’s Market Position and Strategic Focus
IOI Corporation (IOI), a major player on Malaysia’s agribusiness stage, has emerged as a downstream margin leader among integrated plantation companies. This strength is attributed to IOI’s superior procurement strategy and ability to leverage lower feedstock prices, especially when compared to both domestic and Indonesian peers. However, the company faces near-term challenges from intensifying Indonesian competition, elevated palm kernel (PK) prices, and subdued demand, factors that may pressure margins in upcoming quarters.
CGS International has upgraded IOI’s rating to Hold, setting a new target price (TP) of RM3.50, up from RM3.25, as the valuation is rolled forward to FY26F. This report delivers a deep dive into IOI’s financials, segment analysis, ESG commitments, and peer comparison, providing investors and market watchers with a comprehensive perspective.
Financial Performance Review: Q3 FY25 Results in Focus
Q3 FY25 Core Net Profit: RM244 million (down 34% qoq, up 0.4% yoy)
9M FY25 Core Net Profit: RM917 million (up 7% yoy), representing 69% of full-year forecasts.
Key Drivers: Sequential decline in net profit driven by lower crude palm oil (CPO) production and sales volumes, despite higher average selling prices (ASP) for CPO and PK. The downturn was partially cushioned by improved contributions from the resource-based manufacturing segment, particularly the refinery sub-segment.
Segmental Performance Snapshot
| Segment |
2QFY25 |
3QFY25 |
QoQ % Chg |
YoY % Chg |
9MFY25 |
YoY % Chg (9M) |
| Revenue (RMm) |
2,965.8 |
2,735.6 |
(7.8) |
11.1 |
8,374.6 |
18.6 |
| EBITDA (RMm) |
495.7 |
283.3 |
(42.8) |
(21.3) |
1,203.9 |
0.5 |
| Core Net Profit (RMm) |
369.1 |
244.3 |
(33.8) |
0.4 |
916.7 |
9.4 |
Downstream Operations: Industry-Leading Margins and Strategic Advantages
Downstream Operating Margin: Improved to 2.4% in 3QFY25 (from 0.2% in 2QFY25 and 2.3% in 3QFY24).
Drivers: Gains attributed to higher refinery margins and IOI’s effective procurement, enabling it to benefit more from lower feedstock costs than peers, especially those with Indonesian operations.
Sustainability Outlook: While IOI’s downstream margin leads the sector, the outlook for 4QFY25 is cautious. Heightened competition from Indonesia and high PK prices are expected to pressure oleochemical margins, compounded by weak demand. The specialty fats segment, via IOI’s associate Bunge Loders Croklaan, is expected to maintain robust margins, particularly for cocoa butter equivalents.
Upstream Segment: Navigating Price Pressures and Production Cycles
CPO Price Impact: CPO prices have fallen 21% since April 2025, but higher FFB and CPO production (due to better weather and the end of a low production cycle) should support upstream earnings.
Production Metrics:
FFB Production: 575,815 tonnes in 3QFY25 (down 25% qoq, down 5% yoy)
CPO Production: 121,823 tonnes in 3QFY25 (down 27.4% qoq, down 8.3% yoy)
PK Production: 21,297 tonnes in 3QFY25 (down 26.4% qoq, down 14% yoy)
Valuation and Analyst Recommendation
Current Price: RM3.72
Target Price: RM3.50 (previous: RM3.25)
Rating: Hold (upgraded from Reduce)
Implied Downside: -5.9%
Valuation Methodology: Sum-of-parts (SOP), incorporating forward P/E multiples for plantations (19x) and manufacturing (12x), and valuing Bumitama Agri (32.1% holding).
Peer Comparison: How IOI Stacks Up
| Company |
Ticker |
Rating |
Current Price (RM) |
Target Price (RM) |
Market Cap (US\$ m) |
P/E CY25F |
P/E CY26F |
P/BV CY26F |
ROE CY26F (%) |
Dividend Yield CY26F (%) |
| SD Guthrie Bhd |
SDG MK |
Add |
4.63 |
5.20 |
7,493 |
20.7 |
20.9 |
1.48 |
7.0 |
2.4 |
| Kuala Lumpur Kepong |
KLK MK |
Hold |
19.62 |
19.50 |
5,113 |
46.2 |
17.7 |
1.49 |
8.7 |
3.2 |
| IOI Corporation |
IOI MK |
Hold |
3.68 |
3.50 |
5,342 |
18.5 |
16.5 |
1.79 |
10.8 |
3.0 |
| Genting Plantations |
GENP MK |
Hold |
4.86 |
5.90 |
1,020 |
14.4 |
14.7 |
0.81 |
5.5 |
4.1 |
| Hap Seng Plantations |
HAPL MK |
Add |
1.86 |
2.25 |
348 |
11.2 |
10.6 |
0.70 |
6.7 |
5.7 |
| Ta Ann |
TAH MK |
Add |
4.00 |
5.50 |
412 |
9.8 |
9.4 |
0.82 |
9.1 |
6.4 |
Malaysia Average: P/E 20.1 (CY25F), 15.0 (CY26F); P/BV 1.24 (CY25F), 1.18 (CY26F); ROE 8.0%; Dividend Yield 4.1%.
Comprehensive Financial Summary and Key Metrics
|
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 |
| FD Core P/E (x) |
15.86 |
20.75 |
17.37 |
16.29 |
15.57 |
| DPS (RM) |
0.15 |
0.09 |
0.11 |
0.11 |
0.12 |
| Dividend Yield (%) |
4.03 |
2.40 |
2.88 |
3.07 |
3.21 |
| ROE (%) |
13.2 |
9.7 |
11.1 |
11.2 |
11.1 |
| Net Gearing (%) |
12.5 |
12.1 |
7.7 |
4.6 |
1.6 |
ESG Commitment: Sustainability at the Core
ESG Score: LSEG ESG Combined Score – B- (B+ Environmental, C+ Social, C+ Governance)
Certifications & Index Memberships: Member of FTSE4Good Bursa Malaysia Index; top 25% by ESG Ratings in FBM Emas; 96% of estates and all 14 Malaysian mills RSPO-certified.
Strategic Priorities: Five-year roadmap (2020-2025) prioritizes value-added, diversified palm-based products, yield optimization, workforce efficiency, and crop diversification.
Net Zero Ambition: Targeting Net Zero by 2040, implementing climate adaptation, biodiversity protection, circular resource use, and workforce upskilling.
ESG Rankings: 84.1% in the 2024 SPOTT assessment, ranked 18th out of 96 global palm oil producers.
Balance Sheet and Key Ratios
Total Assets: Expected to grow from RM17.6bn (FY23) to RM21.8bn (FY27)
Total Equity: Projected to rise from RM11.7bn (FY23) to RM14.2bn (FY27)
Operating EBITDA Margin: 12.8% (FY25F), stabilizing around 13% through FY27F
BVPS: RM1.83 (FY23) to RM2.22 (FY27F)
ROIC: 14.5% (FY23A), expected to stabilize around 14% by FY27F
Conclusion: Investment Outlook and Key Catalysts
While IOI Corporation’s procurement expertise and downstream margin leadership set it apart in the Malaysian palm oil sector, the company’s near-term outlook is clouded by external market pressures, especially from Indonesian competitors and volatile PK prices. The longer-term fundamentals are strengthened by IOI’s ESG commitments, productivity improvements, and prudent balance sheet management. Upside risks include a sharp increase in CPO prices and potential M&A activity, while downside risks stem from production shortfalls and policy changes in Indonesia.
IOI’s Hold rating and modest downside to target price suggest a balanced risk-reward profile for investors seeking exposure to a leading, sustainability-focused Malaysian agribusiness with resilient operational foundations.
Major Shareholders
- Progressive Holdings: 50.5%
- EPF: 13.0%
- PNB: 7.0%
Contact Analyst
Jacquelyn Yow T: (60) 3 2635 9283 E: jacquelyn.yow@cgsi.com
Stock Ratings Framework
- Add: Total return expected to exceed 10% over 12 months.
- Hold: Total return expected between 0% and 10% over 12 months.
- Reduce: Total return expected to fall below 0% over 12 months.
Distribution as of March 31, 2025: Add 71.0%, Hold 20.9%, Reduce 8.2%.
Price Performance
- 1M: 1.1%
- 3M: -1.1%
- 12M: -5.8%
- Relative to FBMKLCI (12M): -0.1%
