IOICORP: Plantation Sector Poised for Growth Amid Strategic Initiatives, Target Price Raised

Investment analysts have issued a ‘BUY’ recommendation, setting a target price of RM0.25 for a leading plantation entity, signaling a robust 25.0% upside from its last traded price of RM0.20. This positive outlook is primarily driven by anticipated strong performance in its core plantation segment, supported by strategic initiatives aimed at enhancing productivity and expanding capacity.

Performance Review

Management conveyed a mixed, yet predominantly optimistic, outlook during a recent briefing. While the group recorded an RM18 million loss in FY25 due to a RM39.2 million impairment on an underutilised palm wood plant, the core net profit for FY25, at RM1,247.1 million, indicates a healthy underlying financial performance and growth. The resource-based manufacturing division is also showing signs of emerging from its trough, having potentially passed its lowest point.

Strategic Initiatives & Outlook

For FY26, the company anticipates a commendable performance, buoyed by favourable Crude Palm Oil (CPO) prices and increased Fresh Fruit Bunch (FFB) output. Management projects 5-10% FFB production growth for the upcoming fiscal year. Despite rising fertiliser costs, expected to increase by a high single-digit percentage, the impact on production costs is anticipated to be cushioned by higher yields. Furthermore, CPO prices are expected to remain firm until November, benefiting from pre-festive season demand.

The company’s new 2025-2029 roadmap outlines four strategic priorities: product portfolio expansion, innovation, productivity & quality, and sustainability & climate initiatives. Key operational targets include aggressively replanting 12,000 hectares to improve the plantation age profile, and doubling ester plant capacity in Penang to 24,000 tonnes. Capital expenditure for the upcoming year is budgeted at RM900 million, with the majority allocated to upstream operations.

Challenges & Mitigations

Challenges, however, persist, including elevated palm kernel prices and intense competition in the manufacturing segment, as well as softer utilisation rates for its refinery (~70%) and oleochemical plants (>60%). Persistent rainfall in Indonesia also impacted fertiliser application in FY25, with only 60% completion in the region. Nevertheless, management’s proactive measures, such as securing fertiliser requirements for the next six months and a focus on higher yields, are expected to mitigate these headwinds, reinforcing the positive investment thesis.