KUALA LUMPUR: IOI Corporation Bhd's downstream manufacturing segment is anticipated to show signs of recovery, driven by higher refinery margins and increased demand for oleochemical products ahead of the implementation of the EU Deforestation Regulation (EUDR).
Public Investment Bank Bhd (PublicInvest) said for the financial year 2024 (FY24), the oleochemical segment contributed RM80 million in profit, while the refinery segment generated about RM100 million in profit.
"Refinery margin has recovered to breakeven level on the back of more Roundtable on Sustainable Palm Oil (RSPO) certified CPO sales, which is in compliance with the UEDR standard," it said in a note.
The investment bank also noted that IOI Corporation's oleochemical business has shown improvement since the second quarter of 2024 (2Q24), with margins rising by 20 to 35 per cent compared to six months ago.
Additionally, sales volume in Europe has been increasing in anticipation of the EUDR implementation.
"Overall, it foresees stronger downstream manufacturing performance for the first half of 2025 (1H25)," it added.
The investment bank said the management expects stronger plantation performance in FY25, on the back of stronger palm oil demand and lower production costs.
IOI Corporation expects crude palm oil (CPO) production cost to be lowered by RM100 to RM2,230 per metric tonne (/mt) for financial year 2025 (FY25).
"FY24's FFB production grew 4 per cent year-on-year (YoY) and is projected to see another 5 per cent growth in FY25, led by a young age tree profile in Indonesia.
"Indonesian FFB yield averaged at 13.5 metric tonnes per hectare (mt/ha), while Malaysia stood at .4 mt/ha, w with a big portion of the plantation land subject to replanting.
"Management has set its sights on bumping up the FFB production yield in Malaysia for the next 3-4 years," it added.
Regarding its joint venture with Nextgreen Global Bhd, PublicInvest indicated that the current profit contribution is minimal and is expected to become more significant in the next two years.
The investment bank has retained its 'Neutral' rating on IOI Corporation, with a target price of RM4.08.