IOI earnings outlook for FY26 remains healthy
PETALING JAYA: IOI Corp Bhd's plantation earnings outlook stays intact for the financial year 2026 (FY26) given better fresh fruit bunch (FFB) output growth and declining production costs, according to analysts.
Post-results briefing by the group, Hong Leong Investment Bank (HLIB) Research, in a report, said the plantation division would remain IOI's primary earnings growth driver in FY26.
However, a challenging operating environment would likely persist into FY26 at the manufacturing segment, but the worst might be over, it added.
"We understand that the weak performance at IOI Palm Wood, an 80%-owned subsidiary was primarily due to production inefficiencies, which management is currently addressing," the research house said, adding that the IOI management remained positive on the long-term outlook for the unit.
IOI has also guided higher capital expenditure (capex) at RM900mil for FY26 from RM500mil in FY25.
The bulk of the capex will be incurred on its ongoing accelerated replanting programme (about 12,000ha targeted for FY26), new planting of coconut (l,000ha) and downstream expansion as well as capacity expansion at its fatty ester plant in Penang.
The management at the recent briefing also revealed that IOI's new strategic roadmap (2025 to 2029) was to establish the group as a global leader in sustainable palm products and ingredients by focusing on four key priorities.
They include strengthening product portfolio to unlock new market opportunities and drive value creation, focusing on innovation to provide differentiated offerings to customers for value-added niche applications, increasing productivity and quality to be cost efficient and a reliable supplier.
HLIB Research, which maintained a “hold” call on IOI, has kept its target price unchanged at RM4.02 per share.
Meanwhile, RHB Research expected IOI's upstream earnings to continue doing well on the back of elevated crude palm oil prices and a recovery in output, while the downstream division might face some challenges.
Going forward, IOI expected the refining segment to be challenging, with competition remaining stiff, while it had started seeing volume improvement in the oleochemical segment coming from more US tariff clarity and preloading activities pre-European Union Deforestation Regulation enforcement.
As for IOI's five-year strategic roadmap, RHB Research said: "While we believe most of these plans are achievable, some plans may not be immediately earnings-accretive and may take some time to turn a profit."
The research house had kept a “buy" call on the stock with a target price of RM4.40 per share.
Phillip Capital Research said: "We came away from IOI's briefing reassured about its upstream prospects despite continued weakness in the resource-based manufacturing (RBM) segment."
The research house, which maintained a "hold” call on IOI with an unchanged target price of RM3.84, said: “While upstream recovery and coconut expansion underpin long-term earnings prospects, we remain cautious on near-term RBM performance.”
The key risks include prolonged RBM margin pressure, weaker-than-expected production and palm prices, and regulatory hurdles impacting exports.