PETALING JAYA: Analysts believe that plantation group IOI Corp Bhd
will record a higher net profit in the first quarter ended Sept 30 (1Q27) compared to 1Q26 due to stronger crude palm oil (CPO) price and production.
Citing the Malaysian Palm Oil Board, AmInvestment Bank Research said average CPO price was RM4,552 per tonne in 1Q27, 6.6% higher than RM4,271 per tonne in 1Q26.
“As for manufacturing (refining and oleochemicals), we think that earnings before interest and tax would improve year-on-year (y-o-y) in 1Q27 as selling prices of oleochemicals rise in line with crude oil prices.
“Dampener is Bunge Loders Croklaan, which may record lower earnings due to a decline in the selling prices of cocoa butter substitutes.
“Hence, we maintain a ‘hold’ on IOI with a target price of RM5 per share,” it told clients. At last look, the stock was trading at RM4.42.
AmInvestment said it forecasts IOI’s fresh fruit bunch (FFB) production to decline by 2.5% in FY27 (FY26: 4.2%, 1Q27: 4.6% y-o-y) due to El Nino.
“We believe that the impact of 2026’s El Nino would not be as severe as 2015/2016 as there is occasional rain in Sabah and Peninsular Malaysia,” it said, noting that FFB production fell by 11.2% y-o-y in FY16 due to the El Nino in 2015.
It said it believed that fertiliser costs would rise by 10% to 15% in 2027.
“Hence, IOI’s CPO cost of production (based on cost of sales) may rise to more than RM2,660 per tonne in FY27 from RM2,593/tonne in FY26.
“A hike in minimum wage from RM1,700 per month to RM2,000 per month is not expected to affect IOI significantly as most of the estate workers in Malaysia are paid higher than RM2,000 per month.”
AmInvestment added that recently, Indonesia passed a land reform law, which may see 20% of titled landbank being handed over to the government.
Details on the law are pending, it noted, but said that the silver lining was that IOI’s exposure to Indonesia is smaller than the other large plantation companies in Malaysia.
It said IOI has 21,369ha of oil palm estates in Indonesia, which are 12.5% of the total planted areas.
The research house applied a price-to-earnings (PE) of 18 times on IOI’s 2027 earnings per share to arrive at the target price of RM5 per share.
The PE of 18 times is one standard deviation below the average of 20 times for big-cap planters in the past five years, it said, adding that it applied a discount due to structural changes in the refining and oleochemical industries arising from overcapacity in Indonesia and China.
“Key risks for the company are a fall in CPO prices and the absence of a recovery in the oleochemical industry,” said the research house.
