KUALA LUMPUR (Aug 27): Analysts expect a better first half (1HFY2025) for IOI Corporation Bhd (KL: IOICORP) on the back of improved fresh fruit bunch (FFB) production and lower crude palm oil (CPO) production costs, after its full-year ended June 30, 2024 (FY2024) came mostly within expectations.
“Moving forward, we expect the group’s upstream earnings to improve due to lower costs, while downstream earnings are anticipated to see a slower recovery with more significant improvements expected from 1HFY2025F (forecast),” BIMB Securities Research said in a note on Tuesday.
Although it expects stiff competition from other edible oils and refineries in Indonesia, moving forward, it anticipates higher production, better yield, and favourable fertiliser prices to support IOI Corp’s earnings growth.
“This (competition) could be partially cushion by the expected higher performance from the specialty fats sub-segment and recovery in the oleochemical sub-segment, with better performance anticipated in 1HFY2025F due to stock building from Europe ahead of the EUDR (EU Deforestation Regulation) implementation,” it added.
BIMB Securities maintained its “buy” call on IOI Corp, with a target price of RM4.50.
The research firm noted that IOI Corp’s plantation segment improved slightly by 3% year-on-year (y-o-y), driven by higher oil extraction rate (OER) and increased FFB production, which helped offset the drop in the average CPO price to RM3,856 (-6.4% y-o-y) in FY2024.
Similarly, Public Investment Bank Bhd (Public IB) noted that both revenue and core profit before tax (PBT) dropped by -17% and -22% y-o-y respectively in FY2024, mainly dragged by lower profit from the resources-based manufacturing (RBM) segment, which declined by -61% y-o-y.
Meanwhile, average CPO price climbed from RM3,906/metric tonne (mt) to RM4,118/mt (FY2024: RM3,856/mt, y-o-y: -6.4% y-o-y) while 4QFY2024 FFB production gained 4.2% y-o-y to 644,987 mt (FY2024: 2.8 million mt, +4.4%).
FY2024 OER improved from 20.92% to 21.77%, while FFB yield increased from 18.7mt/hectare (ha) to 19.3mt/ha as well.
“Management sees a positive growth for the plantation segment in FY2025, on the back of improved FFB production and lower CPO production cost,” Public IB said.
“FFB production is projected to be higher, led by continuing labour productivity improvement in Peninsular Malaysia and increased production from the young area, despite the accelerated replanting programme in Sabah,” it added.
Public IB maintained a “neutral” call on IOI Corp, with an unchanged target price of RM4.08.
Conversely, Hong Leong Investment Bank (HLIB) noted that IOI Corp missed expectations due to lower-than-expected FFB output, and lower-than-expected realised average CPO selling price.
“We lower our FY2025-FY2027 core net profit forecasts by -6.0%/-2.6%/-3.2%, mainly to account for lower FFB yield assumption,” HLIB said.
Despite this, “management seems optimistic on its 1HFY2025 prospects, underpinned by FFB output growth and lower estate costs at its plantation segment, [as well as] anticipated recovery in [its] oleochemical sub-segment and refining sub-segment,” HLIB added.
HLIB has maintained its “buy” call on IOI Corp, with a lower target price of RM4.22 (from RM4.49 previously).
IOI Corp's shares gained 5 sen or 1.3% at RM3.84 at closing, valuing the group at RM24.1 billion.