IOICORP: Manufacturing Recovery Fuels Strong First Quarter Performance, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
IOI Corporation commenced its fiscal year with a robust performance in the first quarter of FY26, reporting a core net profit of RM370.8 million, excluding a net forex loss of RM1.4 million. This figure was notably 7.5% higher year-on-year and was deemed in line with both the investment bank’s forecast and market consensus. The positive results were primarily underpinned by higher palm product prices, increased Fresh Fruit Bunch (FFB) production, and a significant recovery in manufacturing earnings.
Performance Review
The plantation segment exhibited strong growth, with Earnings Before Interest and Taxes (EBIT), excluding fair value changes and associates, expanding by 16.6% year-on-year to RM350.6 million. This was largely attributable to a 2.7% rise in average Crude Palm Oil (CPO) prices to RM4,169 per tonne in 1QFY26, up from RM4,059 per tonne in 1QFY25, alongside a 2.3% year-on-year increase in FFB production. Concurrently, the cost of CPO production saw an improvement, declining to RM1,833 per tonne from RM1,948 per tonne in the previous year.
A significant turnaround was observed in the manufacturing division, which moved from a loss of RM17.3 million in EBIT in 1QFY25 to a positive EBIT of RM83.6 million in 1QFY26. This recovery was spurred by improved refining and oleochemical processing margins. Specifically, refining EBIT rebounded to RM25.6 million from a loss of RM26.6 million, while oleochemical EBIT grew substantially to RM61.9 million from RM14.2 million. Losses in the wood panel division also narrowed, contributing to the overall manufacturing segment’s improved performance.
Future Outlook and Challenges
Despite the strong start, AmInvestment Bank holds a cautious view on the sustainability of the manufacturing earnings recovery, citing stiff competition from Indonesian companies. The outlook for the Malaysian refining and oleochemical industries remains challenging due to structural changes and overcapacity in Indonesia and China.
Looking ahead, the second quarter of FY26 is anticipated to be weaker, influenced by a current decline in CPO prices from a high of RM4,600 per tonne to RM4,000 per tonne. However, the bank projects an average CPO price of RM4,400 per tonne for FY27F, buoyed by the expected implementation of Indonesia’s B50 biodiesel policy in the second half of 2026. Consequently, AmInvestment Bank has raised its FY27F net profit forecast for IOI Corporation by 2.7% to reflect a stronger CPO price assumption.
Recommendation
Based on these factors, AmInvestment Bank maintains its “HOLD” recommendation on IOI Corporation, with a slightly increased target price of RM4.12 per share, up from RM4.05 previously. This target price is derived by applying an 18x PE multiple on CY26F EPS, representing one standard deviation below the five-year average for big-cap planters, reflecting the ongoing structural challenges in the downstream segments.
