PETALING JAYA: Despite a decline in crude palm oil (CPO) prices, IOI Corp Bhd
is expected to report stronger earnings in the fourth quarter (4Q) ended June 30, 2025.
According to UOB Kay Hian (UOBKH) Research, IOI Corp is likely to realise CPO prices that are higher than prevailing spot prices, thanks to its strategy of forward-selling a significant portion of its near-term plantation output.
The group’s fourth-quarter performance is also expected to benefit from a rebound in plantation yields compared to the previous quarter.
In its results preview report, UOBKH Research also anticipated downstream profit contribution to rise sequentially aided by lower feedstock costs.
“We expect IOI Corp’s 4Q core net profit to come in around 11% higher quarter-on-quarter at RM310mil (versus 3Q’s RM279mil).
“This is despite the recent fall off in CPO prices after the first quarter of this year,” it said in the report.
It noted that the group’s May’s production output marked the third consecutive month of year-on-year (y-o-y) growth and with that IOI Corp appears on track to end financial year 2025 (FY25) with a slight growth in fresh fruit bunch (FFB) output, which could meet management’s revised growth target of 1% to 2%.
As of the first 11 months of FY25, FFB production had risen 0.6% which slightly ahead of UOBKH Research’s full-year growth assumption of 0.1%.
“The latest production trend suggests that the group is shrugging off production disappointments seen in the previous months amid instances of unfavourable weather conditions having affected its palm oil estates,” it added.
Meanwhile, IOI Corp is also keeping a close watch on potential headwinds in its downstream operations, as the group awaits clarity on the implementation of the oleochemical sales tax.
Based on the government’s latest expansion of its sales and service tax or SST scope, palm oil kernel products – which were previously exempted goods – are reportedly set to be taxed 5% from the second half of this year or 2H25.
“This may have negative implications on IOI Corp’s FY26 oleochemical earnings contribution, given that its downstream facilities are situated primarily in Malaysia.
“That said, we believe the impact is still manageable, given the group’s relatively smaller oleochemicals capacity.
“We make no changes to our earnings estimates for the time being, pending the outcome of the appeal made by domestic oleochemical players regarding the new taxation measure,” said UOBKH Research.
Notwithstanding IOI Corp’s positive earnings trajectory, it noted that the stock’s current valuation appears fair, as CPO prices have begun to consolidate and are expected to remain range-bound in the near term.
