IOI Corp targets higher-margin palm oil products, FFB production, says PublicInvest
KUALA LUMPUR: IOI Corp Bhd is expanding into higher-margin palm oil products while expecting fresh fruit bunch (FFB) production to grow by five to eight per cent in financial year 2026 (FY26), according to Public Investment Bank Bhd (PublicInvest).
Following an analyst briefing, the firm said the plantation group aims to increase its exposure to value-added crude palm oil (CPO) products to offset weak refining margins and volatility in palm oil prices.
The move comes as the company's upstream plantation segment is expected to remain resilient, while its downstream business continues to face a challenging outlook.
PublicInvest has maintained a "Neutral" call on the stock with an unchanged sum-of-parts target price of RM4.18.
Meanwhile, PublicInvest noted that IOI Corp's FFB output rose eight per cent in the first half of FY26, although production is expected to decline by about 20 per cent month-on-month in February due to seasonal factors before rebounding around 10 per cent in March.
Management expects overall FFB production growth of five to eight per cent for FY26, with the recent drought in Johor and flooding in Sabah having minimal impact on output.
Fertiliser application has reached about 60 per cent of its target as of the first half of FY26, while replanting is on track to cover 10,000 hectares (ha) this year due to some areas being carried forward from the previous financial year.
Production costs are also projected to decline by about RM200 per metric tonne in FY26, supported by improved FFB yields, better oil extraction rates and fertiliser costs that are expected to fall by three to five per cent year-on-year (YoY).
To cushion weak refining margins, IOI Corp is expanding into premium palm oil products, including low-contaminant refined CPO, Roundtable on Sustainable Palm Oil (RSPO)-certified CPO, organic CPO and mineral oil saturated hydrocarbon products.
PublicInvest noted that RSPO-certified CPO commands a premium of about US$35 to US$40 per metric tonne, while organic CPO can fetch an additional US$400 to US$500 per tonne on top of prevailing CPO prices.
Meanwhile, the group's downstream segment recorded stronger performance in the first half of FY26, driven mainly by improved oleochemical margins in the first quarter following a sharp decline in palm kernel oil prices.
The segment is also expected to benefit from incremental earnings contributions from IOI Corp's 20 per cent-owned associate, Bunge Loders Croklaan.
The speciality fats producer recently completed its second plant in New Orleans, which is expected to lift production capacity by five to ten per cent YoY for products such as cocoa butter equivalents and cocoa butter replacers.
Another new plant in Amsterdam is also under development, with phase one scheduled for completion by September 2026.
Beyond palm oil, IOI Corp is expanding into new ventures, including coconut plantations and palm-based wood and pulp products.
The group also plans to increase its coconut plantation area to 5,000ha from 3,000ha currently.
Construction of a coconut oil mill complex in Segamat is set to begin this year and is expected to be commissioned by 2028. The facility will initially process about 100,000 coconuts per day, with plans to scale up capacity to 200,000 coconuts daily.
PublicInvest estimates the project could contribute about RM50 million to RM60 million in pre-tax profit annually once fully operational.