PETALING JAYA: Prospects for IOI Corp Bhd
are set to strengthen over the coming years, driven by rising plantation productivity, resilient downstream demand and a pipeline of new growth initiatives that could enhance earnings visibility.
The group is positioning itself to benefit from both operational recovery and diversification beyond its traditional palm oil base.
Phillip Capital Research expects these drivers to support a firmer earnings trajectory despite near-term volatility in production.
“We are positive on IOI’s long-term prospects, underpinned by improving plantation productivity, resilient speciality fats margins and emerging growth drivers that enhance earnings visibility,” the research house said.
It highlighted that the company’s accelerated replanting programme is beginning to deliver tangible gains, with stronger fresh fruit bunch (FFB) yields and oil extraction rates supporting output growth and gradual cost normalisation.
Earnings for financial year ending June 30, 2026 (FY26) are projected to rise 16% year-on-year (y-o-y), underpinned by a 5% to 8% increase in FFB production as younger palms mature.
This development is expected to drive operating leverage and reduce unit costs.
Downstream operations remain steady, supported by consistent demand for speciality fats, although margins are likely to ease from previously elevated levels, according to Phillip Capital Research.
It added that expansion plans will further underpin growth, stating: “Ongoing expansion of the ester plant in Penang and speciality fats capacity is expected to further lift contributions.”
“Additional upside could stem from its integrated coconut venture, with operations targeted by early 2028, alongside innovation initiatives and circular economy projects,” it said, noting these efforts should support a more diversified earnings base beyond its core palm oil operations, reinforcing longer-term growth trajectory.
The research house reiterated its “buy” call on the stock with a target price of RM4.57, based on 21 times calendar year 2026 estimated price-to-earnings ratio.
While FY26 and FY27 forecasts were maintained, FY28 earnings per share were raised by 2% to 21.1 sen to reflect stronger crude palm oil production and new growth contributions.
Operationally, plantation performance has shown marked improvement.
In the first half of FY26, FFB production rose about 8% y-o-y to 1.65 million tonnes, while yields climbed roughly 13% to 12.26 tonnes per hectare.
This has translated into cost efficiencies, with production cost declining to RM1,894 per tonne, supported by improved output and lower fertiliser prices.
However, near-term production may face seasonal and weather-related pressures.
Management indicated February 2026 output could fall around 20% month-on-month due to low-crop conditions and heavy rainfall, particularly in Sabah.
Recovery is expected from March onwards, with improvements likely to extend into the fourth quarter of FY26.
Meanwhile, one analyst said IOI’s medium-term growth prospects appear stable.
He explained: “The group’s ability to keep cost broadly stable while navigating downstream margin pressures and gradually unlocking new capacity could position it for more resilient earnings expansion over the next few years.”
