IOICORP: Positive Segment Performance Underpins ‘Buy’ Recommendation
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that the company reported strong 1QFY26 core earnings of RM368 million, marking a significant 36% year-on-year increase. This performance was deemed to be in line with market expectations, driven largely by robust contributions from its plantation and resource-based manufacturing (RBM) divisions. Overall revenue also saw a healthy 14% rise compared to the previous year.
Strong Performance Driven by Key Segments
The plantation segment experienced tailwinds from firmer realised crude palm oil (CPO) prices, while the RBM division demonstrated substantial operational improvements, with margins expanding by 3.1 percentage points year-on-year. This margin growth was primarily attributed to increased contributions from the refinery and oleochemical sub-segments. Operationally, the average selling price (ASP) for CPO rose 3% year-on-year to RM4,169 per metric tonne, and palm kernel (PK) ASP surged 31% year-on-year to RM3,529 per metric tonne. Fresh fruit bunch (FFB) output also increased by 2.3% year-on-year, reaching 777,000 metric tonnes. These results collectively represented a significant portion of consensus full-year forecasts.
On a sequential quarter-on-quarter basis, core profit recorded a strong 38% increase, further bolstered by improved oleochemical and refinery margins, coupled with higher contributions from associates.
Navigating Near-Term Headwinds
Despite the overall positive quarterly performance, the company faced some sequential challenges within its plantation segment. Plantation profit for the quarter slipped 2% quarter-on-quarter to RM402 million, primarily due to higher CPO inventory levels and a lower realised CPO ASP. Management has also expressed a cautious outlook regarding the RBM division’s near-term profitability. This caution stems from persistent competition from cost-efficient Indonesian refiners, which is expected to constrain margin recovery, and elevated feedstock costs in the oleochemical segment.
The company is recognized for its strong underlying fundamentals, including steady cash flow generation, prudent capital management strategies, a favourable age profile for its plantations, resilient upstream performance, steady associate income, strong R&D-led differentiation, and a healthy balance sheet. However, analysts maintain caution on the RBM segment’s near-term performance given the sustained margin compression and intense competitive landscape.
Considering these factors, and reflecting a positive overall long-term outlook, TA SECURITIES has assigned a “Buy” recommendation. The investment bank has set a target price of RM0.25, suggesting a significant 25.0% upside from the last traded price of RM0.20. Key risks that could impact this positive call include potential fluctuations in CPO prices, variations in production and demand, escalating cost pressures, and broader macroeconomic uncertainties.
