IOICORP: Strong Downstream Performance Drives Earnings Beat, Neutral Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company initiated the first quarter of fiscal year 2026 with a core profit of RM368 million, marking a significant 22% year-on-year increase. This performance surpassed initial expectations, aligning with 27% of both internal and street-wide full-year forecasts, primarily driven by robust contributions from its plantation and resource-based manufacturing segments.
Performance Review
Revenue for 1QFY26 expanded 3% quarter-on-quarter and 14% year-on-year, reaching RM3 billion. This growth was largely attributed to a substantial surge in sales from the plantation segment, which saw a 48% year-on-year increase, and the resource-based manufacturing segment, growing by 13% year-on-year. Average Crude Palm Oil (CPO) prices experienced a modest uplift from RM4,059/mt to RM4,169/mt, while palm kernel prices surged from RM2,699/mt to RM3,529/mt. Fresh Fruit Bunch (FFB) production also increased by 2.2% year-on-year to 777k metric tonnes, with the oil extraction rate maintaining a steady 21.34%.
Excluding exceptional items, the core profit of RM368 million was primarily fueled by improved plantation earnings and strong performance from the resource-based manufacturing segment. Plantation earnings grew 13.7% year-on-year to RM401.6 million, benefiting from better selling prices and consistent oil extraction rates. While CPO production cost saw a slight increase to RM1,916/mt, resource-based earnings significantly surged from RM37.6 million to RM131.2 million, bolstered by enhanced contributions from the refinery and oleochemical sub-segments.
Future Outlook
Management anticipates CPO prices to remain above RM4,000/mt for the next three to four months, influenced by the potential onset of La Niña weather patterns and the typical low production cycle ahead of the festive season. Despite an ambitious replanting target of 12,000 hectares in Sabah, FFB production is projected to grow by 5-10% in FY26F, supported by additional mature area and overall yield improvements.
However, the outlook for the refinery and commodity sub-segments remains challenging. Sales margins are expected to hover near breakeven levels due to intense price competition and overcapacity within Indonesia. Conversely, the oleochemical sub-segment is poised for margin improvement, underpinned by the expansion of its customer base.
Investment Bank’s View
The investment bank maintains a Neutral call on the stock, with a new SOP-based target price of RM4.18, following a roll-over of valuations to FY27F. No dividend was declared for the quarter.
