PETALING JAYA: IOI Corp Bhd’s oleochemical division is expected to perform well in the first half of financial year 2025 (1H25), on the back of improved selling prices and strong demand in Europe.

AmInvestment Bank Research said European buyers have been stockpiling palm products since July 2024, ahead of the implementation of the European Union Deforestation Regulation (EUDR).

“We expect the EU to continue stocking up in the 1H25, albeit at a slower pace than 2H24.

“As a gauge of demand, the average price of crude palm kernel oil (PKO) has risen by 27% year-on-year to RM4,989 per tonne in the first nine months of 2024. PKO is a feedstock for fatty acids,” it said.

Under the EUDR, European buyers are not allowed to buy palm products sourced from areas that were deforested after Dec 31, 2020. The penalty for non-compliance is set at 4% of turnover.

Although the EUDR has been postponed to December 2025, IOI had already taken steps to comply with the new regulation.

The brokerage forecast that IOI’s manufacturing (refining and oleochemicals) earnings before interest and tax (Ebit) would climb by 68.2% to RM303mil in FY25, compared to a peak of RM660.6mil in FY23. “We assume an Ebit margin of 3% in FY25 versus 2% in FY24.”

For the upstream division, AmInvestment Bank Research assumed a fresh fruit bunch output growth of 5% for IOI in FY25.

The CPO production cost (cost of sales) is estimated to be RM2,230 per tonne in FY25, down from RM2,330 in FY24.

Looking ahead, the research house cut IOI’s FY25 net profit forecast by 6% and FY26 net earnings by 9% to account for a lower plantation Ebit margin of 40% for both years, down from 42% previously.

“We choose to be less aggressive due to inflationary pressures and the risk of a hike in minimum wage in Malaysia.”