PETALING JAYA: IOI Corp Bhd is expected to see improvements in earnings, fuelled by declining production costs, sustained growth in fresh fruit bunch (FFB) output, and stabilised crude palm oil (CPO) prices.

For the first half of its financial year ending June 30, 2024 (1H24), IOI Corp saw its CPO production cost lower by 7% to RM2,130 per tonne, thanks to lower fertiliser prices as well as the improvements in FFB yield and oil extraction rate.

Hong Leong Investment Bank (HLIB) Research anticipates a continued decline in the production costs, attributing it as a driving force for earnings in 2H24, primarily due to lower fertiliser prices.

Simultaneously, the research house expects a robust momentum in FFB output growth to persist into the latter half of financial year 2024.

“This is supported by adequate labour and minimal lag from El Nino last year,” it said. This expectation also follows IOI Corp’s noteworthy 5.9% growth in FFB output in 1H24.

Kenanga Research, on the other hand, believes IOI Corp’s upstream margins to improve slightly moving ahead as CPO prices look to stay range-bound, while FFB yields improve and input cost eases.

“An average CPO price of RM3,800 per tonne is still expected on the back of only modest global edible oil supply improvement, while demand looks set to grow between 3% and 4% year-on-year,” it noted.

The research outfit also sees CPO production cost to ease as fertiliser and fuel prices have dipped between 20% and 40% year-on-year, while FFB output has risen as Malaysian estates welcomed back guest workers.“Nonetheless, cost of labour is expected to continue creeping up due to new shorter working hour ruling and pending new union agreement,” it said.

On IOI Corp’s downstream, Kenanga Research said it focuses more on specialty and customised products which command better pricing and margins but the operations are not immune to intense competition and demand headwinds, which its refining operation is currently enduring.

“All in all, the guidance is for meaningful improvement in downstream manufacturing only after financial year 2024 (FY24).

“Whilst earnings should improve over the next one to two quarters, subdued full-year earnings are still expected for FY24 and FY25 on flattish CPO prices with some margin improvement from easier costs,” it said.

Similarly, RHB Research expects IOI Corp’s upstream earnings to improve on the back of lower costs, while downstream earnings is expected to see a significant improvement from 1H25.

It expects refinery margins to remain weak, due to stiff competition from Indonesia, while the oleochemical sub-segment is expected to start seeing an improvement in 1H25 once customers run down their inventory.

RHB Research said IOI Corp achieved a CPO price of RM3,736 per tonne in 1H24.

“We understand that it generally sells forward about 20% to 50% of its output three to four months ahead. We project a CPO price of RM3,900 per tonne for FY24,” it noted.

Touching on this, MIDF Research anticipates IOI Corp’s robust recovery in harvesting activities will help it gain high CPO average selling price attained during the El Nino event in the second quarter of 2024, paving the way for near-term profitability.