IOICORP (1961): Navigating Upstream Gains Amidst Downstream Headwinds
Summary (TL;DR):
- Research Firm: AMINVEST Investment Bank
- Subject: IOICORP / IOICORP (1961)
- Core Rating: HOLD
- Target Price / Top Picks: MYR 4.05
- One-Liner: IOICORP’s ‘Hold’ rating reflects a challenging outlook for its downstream oleochemical business, which is expected to temper gains from robust upstream palm oil production.
Report at a Glance
AMINVEST Investment Bank released its latest research report on IOICORP on 2025-07-07, maintaining a “HOLD“ rating with a target price of MYR 4.05. The core thesis of the report is that while the upstream plantation segment shows resilience and growth, the downstream manufacturing division, particularly oleochemicals, faces significant headwinds that temper overall earnings prospects.
Investment Thesis (The Bull Case)
- Point 1: Anticipated QoQ rise in 4QFY25 core net profit, driven by higher Crude Palm Oil (CPO) production volumes.
- Point 2: Strong upstream segment, with Fresh Fruit Bunch (FFB) production estimated to climb more than 30% QoQ in 4QFY25, offsetting CPO price declines.
- Point 3 / Key Beneficiaries: Highly efficient plantation operations, boasting one of the industry’s lowest CPO production costs (RM2,505/tonne in FY24). Additionally, a new paper pulp factory in Pekan, Pahang, is expected to be completed by 2027F and contribute earnings from FY28F, with Xiamen C&D as a key off-taker.
Potential Risks (The Bear Case)
- Risk 1: Challenging outlook for the manufacturing segment (refining and oleochemicals) due to global economic uncertainties impacting demand.
- Risk 2: Potential negative impact of a 5% sales tax on Palm Kernel Oil (PKO) in Malaysia, which may affect oleochemical EBIT as costs are difficult to pass on due to competitive pricing from Indonesian players.
- Risk 3: Risk of a significant fall in CPO prices and a non-recovery in the broader oleochemical industry.
Financial Forecast Summary
The analyst’s financial projections for the coming years are as follows:
| Fiscal Year (YE to Jun) | FY25F | FY26F | FY27F |
|---|---|---|---|
| Revenue (RM mil) | 10,585.6 | 9,360.8 | 9,905.4 |
| Net Profit (RM mil) | 1,257.7 | 1,328.3 | 1,473.0 |
| EPS (sen) | 20.3 | 21.4 | 23.7 |
| DPS (sen) | 11.0 | 12.0 | 13.0 |
| Dividend Yield (%) | 2.9 | 3.2 | 3.5 |
| P/E Ratio (x) | 18.4 | 17.5 | 15.8 |
(Source: AMINVEST Investment Bank research report)
Valuation & Target Price
| Rating | HOLD |
| Last Close Price | MYR 3.74 |
| Target Price (TP) | MYR 4.05 |
| Valuation Methodology | The target price of MYR 4.05 is derived from applying an 18x PE multiple to IOICORP’s CY26F EPS. This multiple is set one standard deviation below the five-year average (20x) for big-cap planters, reflecting a discount due to structural changes and increased capacity in the oleochemical industry from Indonesia and China. |
Analyst’s Conclusion
- Overall Stance: AMINVEST maintains a “HOLD” rating on IOICORP, primarily due to the challenging and uncertain outlook for its downstream refining and oleochemical businesses, which are expected to overshadow the robust performance of its upstream plantation segment.
- Key Catalyst/Strength: The primary strength lies in IOICORP’s efficient and improving upstream plantation operations, with strong FFB production growth expected to bolster earnings.
- Major Headwind/Risk: The most significant headwind is the challenging environment for the manufacturing segment, particularly the oleochemical business, which faces demand uncertainties and the potential burden of a 5% sales tax on PKO without the ability to pass on costs.
- What to Watch: Investors should closely monitor global CPO price trends, any developments regarding the PKO sales tax, and signs of recovery or further deterioration in the oleochemical industry. The progress of the new paper pulp factory also warrants attention for long-term growth.
Disclaimer: This article is a summary and interpretation of a research report published by AMINVEST Investment Bank on 2025-07-07. All information is for reference purposes only and does not constitute investment advice. Investors should conduct their own independent research and due diligence and assume all associated risks.
