UOB Kay Hian
9 July 2025

IOI Corporation Bhd: Navigating Growth Amidst Market Volatility – Financial Review and Outlook for FY25/26

Overview of IOI Corporation Bhd

IOI Corporation Bhd stands as a prominent integrated palm oil player within Malaysia’s consumer staples sector. With a substantial market capitalization of RM23.5 billion (US\$5.54 billion) and a broad investor base, IOI is recognized for its robust plantation and downstream operations. As of the latest update, the stock trades at RM3.79, with a revised target price of RM3.60, reflecting a slight downside potential of 5%.

• Bloomberg Ticker: IOI MK
• Shares Issued: 6,203.7 million
• Major Shareholders:
  • Progressive Holdings SB: 50.5%
  • Employees Provident Fund Board: 13.3%
• 52-Week Range: RM4.14 / RM3.40

Key Investment Highlights

• IOI’s 4QFY25 core net profit is projected at RM310 million, up 11% quarter-on-quarter.
• This uptick is expected despite lower crude palm oil (CPO) spot prices, due to increased plantation output and favorable forward sales contracts.
• The downstream segment is poised for sequential profit improvement, supported by lower feedstock costs.
• Target price revised to RM3.60 as valuation horizon rolls forward to FY26.

4QFY25 Earnings Preview: Profit Growth Driven by Output and Forward Sales

The 4QFY25 outlook for IOI Corporation is optimistic, with anticipated core net profit of RM310 million, marking an 11% increase from the previous quarter. This resilience comes in the face of a downturn in CPO spot prices, as IOI’s realized prices are expected to exceed spot levels owing to its strategy of selling a large proportion of near-term output forward. The quarter is also bolstered by a marked rise in plantation output compared to 3QFY25, alongside sustained recovery in downstream margins.

Production Trends and Operational Performance

• May 2025 marked the third consecutive month of year-on-year (yoy) output growth for IOI, setting the company on course to achieve its revised full-year fresh fruit bunch (FFB) production growth target of 1-2%.
• For the first 11 months of FY25, FFB output is up 0.6% yoy, slightly above the modelled annual assumption of 0.1% growth.
• April 2025’s high base (25% month-on-month surge) led to a 4% month-on-month dip in May, but the two-month average was still 31% higher sequentially than in 3QFY25.
• The rebound in production signals IOI’s recovery from earlier weather-related disruptions.

Regulatory Changes: Sales Tax on Oleochemicals

A major regulatory development is the Malaysian government’s decision to extend the Sales and Service Tax (SST) to palm oil kernel products, previously exempt, at a 5% rate starting in 2H25. This could impact IOI’s FY26 oleochemical earnings, especially since its downstream operations are Malaysia-centric. However, the effect is expected to be manageable due to IOI’s smaller oleochemical capacity (890,000 tonnes per annum) relative to its refining (1.8 million tpa) and specialty fats (1.1 million tpa) capacities. Earnings estimates remain unchanged pending the outcome of ongoing industry appeals.

Financial Performance Snapshot

Earnings Outlook and Valuation

• No change to FY25-27 earnings projections, with FY26 core earnings expected at RM1,318 million, a marginal increase driven by stronger plantation output and recovery in the downstream segment.
• FY26 assumes a CPO price of RM4,000/tonne, high single-digit FFB growth, and robust refining as well as specialty fats contributions.
• IOI’s SOTP-based fair value is RM3.60 per share, reflecting:
  • Plantations: 17x FY25F PE (RM2.61/share)
  • Manufacturing: 15x FY25F PE (RM0.51/share)
  • Bumitama Agri stake (32%): S\$0.78/share fair value (RM0.23/share)
  • Loders’ associate contribution: 18x PE (RM0.49/share)
  • Less net debt: RM0.24/share
• Risks include unexpected FFB output shortfalls or sharper downstream margin contractions, while upside catalysts could be better-than-expected CPO prices or production growth.

Key Metrics and Financial Health

Environmental, Social, and Governance (ESG) Initiatives

• Environmental:
  • All Malaysian estates are MSPO-certified; 96% are RSPO-certified.
  • IOI is proactively engaging with US Customs and Border Protection (CBP) over an ongoing investigation, offering full cooperation.
• Social:
  • Transparent communication with communities and response to cases.
  • Implementation of health, education, and community enrichment programs.
• Governance:
  • Strong emphasis on transparent governance and anti-bribery/corruption policies.

Key Assumptions for FY25

• FFB production growth: 0.1% yoy
• CPO average price: RM4,200/tonne
• Downstream margin: 2.5%

Share Price Catalysts

• Stronger-than-expected CPO prices
• Higher FFB production growth
• Improvement in downstream margins

Conclusion: Investment Perspective

While IOI Corporation Bhd demonstrates resilience and a clear path to earnings recovery, its current valuation is deemed fair given the consolidating CPO price environment. Investors should watch for regulatory updates, operational performance in both plantation and downstream segments, and the company’s ongoing ESG efforts.

Disclaimer

This article is based exclusively on the detailed analysis and financial data provided by UOB Kay Hian as of 9 July 2025.