IOICORP: Strategic Growth Initiatives Underway Amidst Resilient Plantation Sector

AmInvestment Bank has maintained its “Hold” recommendation on IOI Corporation, setting an unchanged target price of RM4.12 per share. The investment bank anticipates that the company’s robust plantation earnings, projected to exceed RM1 billion annually, will effectively offset initial losses from its long-term non-CPO (Crude Palm Oil) ventures, which are expected to achieve profitability within four to five years.

Strategic Investments for Future Growth

IOI Corporation is embarking on significant strategic expansion into non-CPO related businesses, with major projects like the RM900 million paper and pulp factory in Pekan, Pahang, and new coconut mills slated for completion by 2028. The paper and pulp venture, in which IOI holds a 33% share, is expected to generate an EBIT of RM51 million, with IOI’s share at RM17 million. This factory, projected to command a capacity of 150,000 tonnes per year, benefits from a guaranteed off-taker, Xiamen C&D. However, the outlook for these non-CPO ventures carries risks related to selling price volatility and potential operational challenges for new facilities. The company’s total share of capital expenditure for these new ventures is estimated at RM362 million.

Resilient Plantation Performance

The company’s core plantation operations continue to demonstrate resilience. AmInvestment Bank forecasts plantation EBIT to reach RM1.4 billion in FY26F, an increase from RM1.3 billion in FY25. This growth is underpinned by an anticipated 5% rise in Fresh Fruit Bunch (FFB) output in FY26F, following an 8% increase in 1HFY26. Improved FFB yields are primarily attributed to favourable weather conditions in Sabah, particularly after the floods in late 2024 and early 2025. Despite a slight increase in the cost of production to RM2,700 per tonne in FY26F from RM2,623 per tonne in FY25, largely due to higher wage costs, the segment’s performance remains strong.

Steady Contribution from Associates

Furthermore, IOI Corporation is expected to benefit from steady income contributions from its associates, primarily Bunge Loders and Bumitama. The investment bank projects IOI’s share of net profit from these associates to improve by 5% to RM369 million in FY26F. This positive outlook is driven by strong demand for Bunge Loders’ products in the United States and healthy FFB output from Bumitama Agri.

Valuation and Outlook

The “Hold” rating is based on a CY26F price-to-earnings (PE) multiple of 18x, which is one standard deviation below the five-year average PE of 20x for big-cap planters. This lower multiple reflects ongoing earnings risks stemming from the refining and oleochemical operations, which face intense competition and overcapacity, particularly from Indonesia and China. The investment bank’s analysis suggests that while long-term investments are being made, the near-term outlook for the downstream industry remains challenging.