IOICORP: Earnings Outperform on Strong Contributions, Target Price Raised Significantly
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company has reported financial results for the second quarter and first half of fiscal year 2026 (2QFY26 and IHFY26) that significantly exceeded expectations, driven primarily by robust associate contributions and improved margins. This strong performance has led TA Securities to raise its earnings forecasts and issue a positive recommendation.
Financial Performance Overview
In 2QFY26, core net profit edged up 1.4% year-on-year (YoY) to RM412.9 million, supported by a 1.5% YoY increase in revenue. For IHFY26, the company’s core net profit climbed an impressive 16.9% YoY to RM793.7 million, with revenue improving 7.5% YoY. This stronger performance was underpinned by enhanced contributions from both upstream and downstream segments, surpassing the previous corresponding period. In recognition of its performance, the Group declared a dividend of 5.5 sen per share for the quarter.
Segmental Breakdown
The Plantation segment demonstrated resilience, with operating profit rising 7.8% YoY to RM776.7 million in IHFY26, despite a 1.7% YoY decline in average crude palm oil (CPO) prices to RM4,198/tonne. This growth was primarily attributed to firmer palm kernel (PK) prices, which strengthened 12.5% YoY to RM3,485/tonne, and an 8.0% YoY increase in fresh fruit bunch (FFB) output.
The Manufacturing segment marked a significant turnaround, recording an operating profit of RM103.6 million in IHFY26, a substantial reversal from a RM12.4 million loss in the prior year. This was mainly supported by stronger contributions and improved margins from the refinery and oleochemical sub-segments in 1QFY26. However, it is noteworthy that operating profit for the manufacturing segment declined sharply by 76.1% quarter-on-quarter in 2QFY26, reflecting margin compression and a more challenging operating landscape during the period.
Outlook and Challenges
Management anticipates CPO prices to remain above RM4,000/tonne in the near term, bolstered by seasonal FFB supply tightness, festive-driven demand, and the premium of soybean oil over CPO. The specialty fats sub-segment is also expected to maintain robust performance, supported by firm margins and capacity expansion. However, potential upside for CPO prices may be limited by a stronger Ringgit, elevated domestic inventory levels, and delays in Indonesia’s B50 mandate, which could temper demand momentum. Furthermore, the downstream segment, including refinery and commodity marketing, is expected to face continued pressure on margins due to intense competition and high inventories. The oleochemical sub-segment also confronts ongoing headwinds from subdued demand, geopolitical uncertainties, and regulatory risks.
Analyst’s Revised View
TA Securities has significantly upgraded its FY26 and FY27 earnings forecasts by 8.1% and 8.0% respectively. This revision follows a detailed review, factoring in stronger associate contributions and improved margin assumptions. Additionally, an FY28 earnings forecast of RM1.4 billion has been introduced. Given the revised outlook and stronger financial projections, TA Securities has assigned a BUY recommendation for the stock, with a target price (TP) of RM0.25, representing a 25.0% upside from its last traded price of RM0.20.
