IOI Corporation does not offer much excitement to investors but things could change

IOI Corp Bhd may not look like investors’ favourite judging from its rather muted share price movement. The company has shown strong earnings momentum in the first quarter ended Sept 30, 2024 (1QFY25). It registered a 133.8% year-on-year jump in its net profit to RM710.7 million for the three months ended Sept 30, 2024 (1QFY2025) from RM304 million a year ago.

The much better results were driven by foreign exchange (forex) translation gains from its US dollar-denominated borrowings, mainly due to the strengthening of the ringgit against the greenback.

The company also made fair value adjustments on its biological assets and derivative financial instruments. In 1QFY2024, revenue rose 21.4% to RM2.67 billion from RM2.2 billion.

IOI Corp saw higher contribution from its plantation segment, which registered a 12% gain in profit to RM353.1 million. These are thanks to higher crude palm oil and palm kernel prices as well as higher production of fresh fruit bunches (FFB).

However, the stronger plantation segment was partially offset by lower contribution from its resource-based manufacturing business. The underlying profit for this segment declined some 33% to RM37.6 million from RM56.4 million due to lower sales volume and margins from the refining sub-segment, mitigated by higher sales volume and margins from its oleochemical sub-segment nad higher share of associate results.

IOI Corp is expecting crude palm oil (CPO price), which surged above RM5,000 per tonne at the start of November, to remain high at above RM4,500 per tonne during the next three months, supported by tighter palm oil supplies.

The company said lower demand due to high price coupled with the current CPO price premium over soybean oil price will exert some downward pressure on this high CPO price.

The group is also expecting its FFB production is projected to grow moderately compared to FY2024, driven by continued yield improvements in peninsular Malaysia and increased FFB production from maturing young palms in Sabah and Indonesia.

It is also anticipating more forex volatility ahead, influenced by the new US president's policies and the development of US-China geopolitical tensions and the US interest rates.

IOI Corp may continue to face challenges but investors may buy on the current positive momentum after the dip. According to consensus projections, the group is expected to post core net profit of RM1.28 billion in FY25 and RM1.34 billion in FY26.