UOB Kay Hian
Date of Report: Wednesday, 10 September 2025

IOI Corporation FY26 Outlook: Upstream Strength and Downstream Challenges Shape Earnings Trajectory

Overview: IOI Corporation’s FY25 Results and FY26 Guidance

IOI Corporation, a leading integrated palm oil player in Malaysia, has shared its FY25 financial results along with an outlook for FY26 that highlights continued strength in its upstream plantation segment, but ongoing challenges for its downstream refining and oleochemical businesses. The group’s strategy and financial performance provide crucial insights for investors, analysts, and market watchers tracking the palm oil sector.

FY25 Performance Recap: Upstream Segment Drives Profitability

IOI Corporation delivered robust earnings growth for FY25, largely anchored by its upstream plantation segment:

• Adjusted pre-tax profit up 17% year-over-year (YoY) to RM1.62 billion.
• Upstream EBIT surged 30% YoY to RM1.57 billion, propelled by higher average selling prices (ASPs) of crude palm oil (CPO) and palm kernel (PK).
• CPO ASP increased 12%, PK ASP rocketed 50%, while fresh fruit bunch (FFB) production grew just 1% amid accelerated replanting activities.
• Downstream EBIT dropped 49% YoY to RM149 million, with refinery operations barely breaking even versus RM98.5 million EBIT in FY24.

FY26 Outlook: Upstream Anchors, Downstream Still Under Pressure

IOI’s management projects that the upstream plantation segment will continue to deliver strong results in FY26. Key expectations include:

• FFB production growth is forecast at +5-10% YoY for FY26, driven by improved estate yields and better age profiles (average palm age: 12.2 years).
• Accelerated replanting will continue, ramping up from 9,500 hectares in FY25 to 12,000 hectares in FY26.
• Favorable weather conditions anticipated, following disruptive rainfall in FY25.

For the downstream segment, recovery remains elusive:

• Refining margins are still under pressure due to ongoing competition from Indonesian refiners benefiting from raw material cost advantages.
• Oleochemical sub-segment expected to improve, with plant utilization rates climbing above 60% as customer demand rebounds.
• Specialty fats (associate business) set to deliver satisfactory results despite rising raw material costs.

Commodity Price and Cost Dynamics: Impact on FY26 Earnings

IOI expects CPO prices—currently at RM4,400/tonne—to be supported in the near term by festive demand through October and November 2025. Fertilizer prices have also risen recently, which will likely drive up manuring costs by high single digits in FY26.

Capital Expenditure and Financial Position

• FY26 capex is projected to rise to RM900 million (from RM700 million in FY25), reflecting increased replanting and ongoing construction of an oleochemicals plant for fatty esters—a profitable product line.
• The specialty fats associate is also expanding its plant operations.
• Net gearing remains low at 0.14x, with capacity to increase up to 0.30x if needed. No major leverage plans are finalized.
• Dividend payouts are expected to stay at around 50% of underlying profit.

Valuation and Recommendation: HOLD with Higher Target Price

UOB Kay Hian maintains a HOLD rating on IOI Corporation, with a slightly raised target price of RM3.70 (previously RM3.60). While the upstream growth trajectory is positive, persistent downstream underperformance tempers the outlook.

• HOLD rating maintained
• Target price: RM3.70
• Upside: -6.3% from current price of RM3.95

Earnings Revision and Risk Factors

Post-FY25, FY26-27 earnings estimates were raised by 3.2% and 0.7% respectively, mainly due to improved FFB production assumptions. The downstream segment is expected to recover more meaningfully from FY27 onwards.

• Key upward catalysts: Better-than-expected CPO prices, stronger FFB output, and downstream margin recovery.
• Key downward risks: Lower-than-expected FFB production, continued downstream margin pressure.

Key Financial and Operational Metrics

IOI Corporation: Key Shareholder, Market Data, and Dividend Policy

• Major shareholder: Progressive Holdings SB (50.5% ownership).
• Shares issued: 6,285.2 million.
• Market capitalization: RM24,826.5 million (US\$5,902.7 million).
• Dividend payout ratio: Approximately 50% of underlying profit.

Conclusion: IOI Corporation’s Outlook Remains Mixed for FY26

IOI Corporation is poised for continued upstream-driven growth in FY26, supported by higher FFB output and improving estate yields. However, persistent challenges in the downstream segment, especially refining, remain a drag on overall profitability. While the group’s valuation appears fair given its current market dynamics and balanced risk profile, investors should monitor the pace of downstream recovery and commodity price movements for future share price catalysts.

Key Investment Catalysts

• Upside: Better-than-expected CPO prices, higher FFB production, downstream margin recovery.
• Downside: Weaker-than-expected FFB output, further downstream margin erosion.

Key Strategic Assumptions for FY26

• FFB production growth: 6.1% YoY
• CPO price assumption: RM4,000/tonne
• Downstream margin: 1.5%

Contact and Analyst Information

• Lead Analyst: Lester Siew
• Email: [email protected]
• Phone: +603 2147 1990

Disclaimer

This article is for informational purposes only and does not constitute investment advice or solicitation. Please consult with a financial advisor before making investment decisions.