IOICORP: Investment Firm Exceeds Expectations on Cost Efficiencies and Manufacturing Gains
| Key Information Summary | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation | |
A prominent investment firm has reported a robust financial performance for the first half of fiscal year 2026 (6MFY26), with core earnings significantly surpassing both internal and consensus expectations. The company’s core net profit surged 18% year-on-year to RM787 million, primarily attributed to effective cost management and enhanced contributions from its resource-based manufacturing (RBM) segment.
Performance Highlights
The firm’s 6MFY26 revenue also saw an 8% improvement. This growth was largely fueled by more substantial contributions from both its plantation and RBM divisions. The RBM segment, in particular, demonstrated strong operational leverage, with margins expanding by 2.1 percentage points year-on-year to 3%. This was driven by higher contributions from the refinery and oleochemical sub-segments. Operating costs were lower than anticipated, further boosting the earnings surprise. The company also declared a first interim dividend per share (DPS) of 5.5 sen.
Divisional Performance and Challenges
While the overall half-year results were strong, a sequential analysis for the second quarter (2QFY26) revealed mixed performance. Core profit for 2QFY26 increased by 15% quarter-on-quarter, primarily propelled by stronger margins from the plantation segment and increased contributions from associates and joint ventures. However, the RBM segment experienced a 49% quarter-on-quarter decline in profit to RM66.7 million, due to lower contributions and margins from the oleochemical sub-segment. Management has cautioned that persistent competition from cost-efficient Indonesian refiners could temper margin recovery, with the oleochemical sub-segment facing ongoing challenges to near-term profitability.
Outlook and Investment Recommendation
In light of the better-than-expected performance and adjusted operating cost assumptions, the investment bank has raised its earnings per share (EPS) forecasts for FY2026-28 by 8-19%. Consequently, the recommendation for the firm has been upgraded to a “BUY” rating from “HOLD,” with a revised 12-month target price set at RM4.57 (previously RM4.03). The target price is based on an unchanged 21x Price-to-Earnings (PE) multiple on estimated FY2026 EPS. Key risks to this positive outlook include potential fluctuations in CPO prices, production volumes, demand dynamics, escalating cost pressures, and broader macroeconomic uncertainties.
