IOICORP: Downstream Weakness Impacts Full-Year Performance, Target Price Revised Lower

Performance Review

IOI Corporation Berhad reported its fourth-quarter and full-year FY25 financial results, which were below internal expectations but aligned with consensus forecasts for the full year. The weaker performance was primarily attributed to significant losses within its downstream division.

Despite the downstream challenges, the group’s core net profit for 4QFY25 increased by 25.7% year-on-year to RM327.8 million, driven by a 16.6% rise in revenue to RM3.0 billion. For the full FY25, core net profit saw a 15.2% year-on-year increase, reaching RM1.3 billion, on the back of an 18.0% growth in revenue.

The stronger performance of the plantation segment was the primary offset to the weaker contributions from downstream operations. The plantation segment’s operating profit for FY25 surged 33.5% year-on-year to RM1.3 billion. This was largely due to higher realised crude palm oil (CPO) and palm kernel (PK) prices, which advanced 12.3% and 50.0% year-on-year to RM4,332/tonne and RM3,315/tonne, respectively, coupled with a 1.3% year-on-year increase in Fresh Fruit Bunch (FFB) production.

Conversely, the manufacturing segment’s core operating profit for FY25 plummeted 79.5% year-on-year to RM21.5 million. This decline was primarily a result of weaker contributions from the refinery sub-segment, driven by compressed margins, and reduced earnings from associates.

The group declared a second interim dividend of 5.5 sen per share, bringing the total dividends for FY25 to 10.5 sen per share, surpassing the 9.5 sen declared in FY24.

Outlook and Forecast

Looking ahead, management anticipates an increase in FY26 FFB production, supported by a larger proportion of palms reaching maturity, along with ongoing estate mechanisation and digitalisation efforts within the plantation segment.

However, the refinery and oleochemical segments are expected to continue facing margin pressures. This is primarily due to intensifying competition from Indonesian players, prevailing trade tariffs, and an industry-wide overcapacity. Global soybean prices are projected to remain subdued due to ample supply, particularly from South America, which will maintain a bearish tone in the market. While robust demand from the biofuel industry provides some price support, volatility is expected, largely influenced by weather conditions and changes in trade policies. The potential impact of trade tariffs between China and the U.S. on global soybean prices and, consequently, CPO price competitiveness and demand, will be closely monitored.

TA Securities has lowered its FY26-FY27 earnings forecasts for the company by 3.8%-7.4%, reflecting the anticipated reduced contributions from the manufacturing segment. The investment bank maintains its SELL recommendation on the stock with a revised target price of RM3.53 per share, down from its previous valuation, based on a CY26 PER of 16x. The last traded price was RM3.88.