IOI’s capital expenditure is expected to rise to RM900mil in FY26 against approximately RM700mil in FY25.
PETALING JAYA: IOI Corp Bhd
(IOI) is poised to leverage its upstream operations in financial year 2026 (FY26), despite continued accelerated replanting activities next year.
According to UOB Kay Hian (UOBKH) Research, the group’s fresh fruit bunches (FFB) are projected to grow by 5% to 10% year-on-year (y-o-y), attributable to its estates’ improving yield and age profile.
In addition, the palm oil producer registered RM1.62bil for its adjusted pre-tax profit, an increase of 17% y-o-y predominantly driven by its upstream plantation segment, whose underlying earnings before interest and taxes (Ebit) climbed 30% y-o-y to RM1.57bil.
In a note to clients, UOBKH Research said the group’s FFB output grew 14% y-o-y in the fourth quarter (4Q25) of FY25, with harvested mature area down 6%, whereas FFB yield rose 21% y-o-y.
IOI’s capital expenditure is expected to rise to RM900mil in FY26 against approximately RM700mil in FY25, mainly due to increased replanting projects and its ongoing construction of an oleochemicals plant.
Crude palm oil (CPO) prices, currently trading at RM4,400 per tonne, are expected to remain elevated by festive demand until October or November 2025, while rising fertiliser costs are likely to drive FY26 manuring expenses further by a high single digit.
Despite its bold upstream segment outlook, the group’s downstream segment, however, faced a number of headwinds.
This segment posted RM149mil for its underlying Ebit, a dip of 49% given weaker performances across sub-segments.
UOBKH Research highlighted that the refining and oleochemical sub-segments remain under pressure, with refinery operations barely managing to break even, compared with an Ebit contribution of RM98.5mil in FY24.
Moreover, IOI is still facing intense competition, with Indonesia’s refiners benefitting from raw material cost advantages, despite management observing an uptick in overall demand.
The oleochemical sub-segment’s prospects are deemed relatively better, with the group expecting its contribution to recover with higher plant utilisation rates of more than 60% in FY26, given improving customer demand.
Looking ahead, IOI’s FY26 core earnings growth is expected to be flattish given its uneven business prospects, including downside risks of weaker-than-expected FFB output.
Overall weather conditions are also anticipated to be more favourable next year, as compared to FY25, which was partly affected by heavy rainfall for a few months.
UOBKH Research said the group’s share price catalysts include better-than-expected CPO prices, higher-than-expected FFB production growth and improvement in its downstream margin.
It has reiterated its “hold” rating on the group, with a higher target price of RM3.70 from RM3.60 previously.
