IOI Corporation reported its FY24 core earnings, which aligned with in-house projections but fell short of consensus estimates. Analysts have maintained varied outlooks on the stock, with recommendations ranging from HOLD to REDUCE.

The HOLD call, which maintains a target price of RM3.94, anticipates a 15% year-on-year growth in core PATMI for FY25, driven by improved upstream output and a better downstream outlook. Meanwhile, another analysis reiterates a REDUCE rating with an unchanged target price of RM3.25, citing persistent challenges in the downstream segment.

For FY24, IOI Corporation's core PATMI reached RM1.12 billion, marking a 14% decline year-on-year. The upstream segment remained the primary contributor to the company's performance, with an EBIT of RM996 million, a marginal 1% increase year-on-year. This growth was supported by a 4% rise in fresh fruit bunch (FFB) output, which helped offset a 6% drop in the average selling price of crude palm oil (CPO). Additionally, the company's all-in operating cost for the fiscal year was estimated at RM2,225 per tonne, reflecting a 6% year-on-year decrease. Contributions from plantation associates also saw a notable increase, growing by 11% to RM206 million.

However, the downstream segment presented challenges for IOI. The EBIT for this division fell sharply by 70% year-on-year to RM180 million, driven by a 19% drop in revenue and significant margin contraction. The refining sub-segment, in particular, faced difficulties due to high feedstock prices and stiff competition, especially from players in Indonesia. Although the oleochemical sub-segment showed some resilience, benefiting from higher demand for cocoa butter equivalent products amidst rising cocoa prices, overall downstream performance remained weak.

Looking forward, analysts are cautious about the downstream outlook for FY25. While there may be some improvement in the first half of the fiscal year as European Union customers stock up ahead of the EU Deforestation Regulation (EUDR) implementation, the sector is expected to face continued margin pressures due to overcapacity in Indonesian refineries. This is likely to be partially offset by better performance in the plantation segment, supported by production growth, high CPO prices, and lower production costs.

In light of the mixed results, IOI Corporation declared a second interim dividend of 5 sen per share, bringing the total dividend for FY24 to 9.5 sen, slightly lower than the 11.0 sen distributed in FY23.