Bright outlook for IOI on coconut mill development

PETALING JAYA: Analysts have maintained their “buy” call on IOI Corp Bhd after the plantation giant says it has, together with Mega Star Holding Pte Ltd, signed a joint venture to develop Malaysia’s first state-of-the-art, integrated and sustainable coconut mill complex in Segamat, Johor.

MBSB Research said the venture strategically complements IOI Corp’s existing upstream coconut operations, enabling the group to expand its production of high-value lauric-based derivatives and strengthen its position in the specialty oils and fats segment.

It also said it reckoned China-based Mega Star will bring strong downstream expertise, while the collaboration will complement IOI Corp’s move into value-added lauric products and strengthen its access to the China and Taiwan food and beverage markets.

MBSB Research said it believed IOI Corp was investing in this venture because of tight supply and a firm price trend.

“Global coconut oil supply remains structurally tight, constrained by ageing trees in the Philippines and Indonesia (which account for over 70% of global output) and limited replanting progress,” it said.

It noted that as of early November, benchmark coconut oil prices in Rotterdam were hovering around US$1,600 to US$1,650 per tonne, still commanding a 40% to 45% premium over palm kernel oil (PKO).

The persistent spread reflects a structurally tight supply situation and underlines the rationale for upstream investment, it added.

Additionally, MBSB Research said compared to its closest peer, United Plantations (UP) Bhd, IOI Corp’s coconut expansion plan is relatively similar in scale, targeting around 5,000ha over the next five years versus UP’s 4,627ha.

Unlike UP, IOI Corp’s investment extends beyond upstream cultivation into processing and value-chain integration, enabling margin capture from refined lauric products, it said.

“Coconut derivatives generally trade at a higher premium, thanks to their more consistent fatty acid profile.

“This is expected to drive sustained profit expansion, with coconut-based products complementing and enhancing the profitability of the existing PKO portfolio over the long term.”

MBSB Research has an unchanged target price of RM4.42 on the stock.

At last look, it was RM4.06.

In a statement, IOI Corp said the joint venture combines the core business strengths of both corporations, unlocking synergies that will drive growth and expand the coconut-based product portfolio.

Under this strategic partnership, IOI Corp will off-take and market the coconut oil to its associate companies and customers in the European Union and the United States, while Mega Star will leverage its group network to off-take and market the concentrated coconut water to China and other North-East Asian countries, the firm said.

Furthermore, IOI Corp said the complex will process matured coconuts into high-value downstream products, namely coconut oil and concentrated coconut water.

“It is the first coconut mill complex of its kind to utilise the latest robotic and IR 4.0 processing equipment and incorporate a self-generating energy system by utilising its by-product coconut husks as biofuel in the production process.

“There is also a plan to convert another by-product, coconut shells, into high-value activated carbon in the near future in line with IOI Corp’s strategy to adopt the circular economy model,” the group said.

It said the integrated coconut mill complex, involving an estimated investment cost of RM100mil, will have a processing capacity of 100,000 coconuts per day upon its completion in the fourth quarter of financial year 2027.