IOICORP: Robust Segmental Performance Drives Strong Earnings, But Outlook Remains Guarded
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company’s first-quarter fiscal year 2026 (IQFY26) results were largely in line with market expectations, demonstrating a significant improvement in core net profit. Excluding foreign exchange effects and other non-core items, core net profit advanced by 19.5% year-on-year (YoY) to RM362.3 million, supported by a 14.2% increase in revenue, which reached RM3.1 billion. Both the upstream and downstream business segments recorded stronger performances compared to the previous year.
Performance Review
The plantation segment’s operating profit saw a healthy increase of 16.6% YoY, reaching RM350.6 million. This growth was primarily attributed to higher palm oil prices, with Crude Palm Oil (CPO) prices rising 2.7% YoY and Palm Kernel (PK) prices surging 30.8% YoY. Additionally, fresh fruit bunch (FFB) output expanded by 2.3% YoY.
In a significant turnaround, the manufacturing segment posted an operating profit of RM83.6 million in IQFY26, reversing a loss of RM17.3 million in the corresponding period last year. This notable improvement was driven by stronger contributions and enhanced margins from both the refinery and oleochemical sub-segments. For the quarter under review, no dividend was declared.
Future Outlook
Management anticipates an increase in FFB production for fiscal year 2026, a forecast underpinned by a larger proportion of palms reaching maturity, alongside ongoing advancements in estate mechanisation and digitalisation efforts.
Despite improvements in the downstream segment, management maintains a cautious outlook. Refinery and commodity marketing margins are expected to remain weak due to intense competition from Indonesian market players. The oleochemical sub-segment is also projected to face challenges stemming from soft demand, geopolitical risks, and regulatory uncertainties.
The investment bank maintains a cautious view on CPO prices for 2026. Abundant South American soybean supply and the resumption of U.S.-China trade relations are expected to increase soybean oil trades, potentially limiting CPO demand. While strong biofuel demand could provide some support, the overall price stability remains vulnerable to extreme weather events and shifts in trade policy.
Investment Stance
The investment bank maintains a “SELL” recommendation on the company, revising its target price upwards to RM3.97 per share, from the previous RM3.53 per share. This revised target price is based on a higher Calendar Year 2026 (CY26) Price-to-Earnings (PER) multiple of 18x and incorporates a 3% ESG premium. Despite the upward adjustment to the target price and anticipated improvements in the downstream division, the bank believes the share price has outpaced its underlying fundamentals, leading to a negative risk-adjusted return.
