IOI Corporation Bhd has received a BUY rating from RHB Investment Bank Bhd (RHB Research) with an upgraded target price of RM4.90, indicating a potential upside of 25% from its current market price of RM3.93.

RHB Research attributes IOI Corp's positive outlook to recent gains in crude palm oil (CPO) prices, which have now crossed the RM5,000 per tonne mark, driven by a blend of fundamental and speculative factors. Key influences behind this rise include an 18% increase in crude oil prices over two months due to heightened geopolitical tensions, slower-than-expected soybean planting in South America and the Thai government's temporary ban on palm oil exports to stabilise local cooking oil prices.

Additionally, speculation surrounding US President-elect Donald Trump's next move has added further momentum to the market. RHB Research noted that following Trump's election victory in 2016, similar trends were observed in the palm oil and soybean markets, with notable price increases in both commodities.

Looking ahead, RHB Research expects CPO prices to remain elevated above RM4,000 per tonne through the rest of 2024, supported by persistent geopolitical risks and market speculation.

However, the fundamentals for vegetable oils are projected to strengthen as the market is likely to see a tighter supply environment due to Indonesia's low stock levels, an increase in biodiesel mandates and shrinking supplies of other vegetable oils such as sunflower and rapeseed oil.

Consequently, the research house anticipates a deficit in global oils and fats, with a stock-to-usage ratio for key oils expected to drop to a 15-year low of 12.4% next year.

Reflecting these shifts, RHB Research has revised its CPO price assumptions upward, forecasting an average price of RM4,100 per tonne in 2024, RM4,300 per tonne in 2025 and RM4,100 per tonne in 2026.

The research house anticipates higher prices through the first half of 2025, with CPO trading between RM4,400 and RM4,800 per tonne, followed by a moderation of between RM4,000 and RM4,400 per tonne later in the year. Adjustments to foreign exchange and export tax levies also led RHB Research to raise its earnings projections for IOI Corp by 6%, 12% and 8% for FY25, FY26 and FY2027, respectively.

Although IOI Corp's earnings are relatively less sensitive to CPO price fluctuations, the research house sees substantial value in its current valuation, especially as CPO price strength continues to support its investment potential.