Supply tightness in edible oils to persist into 2026

PETALING JAYA: Kenanga Research remains neutral on the plantation sector as there are no strong upside catalysts in sight, despite limited downside risks and undemanding valuations.

In a report, the research house said edible oil supply tightness this year is likely to persist into the next year.

“Although supply is expected to grow in 2026, the increase can, at best, only match the trendline demand growth of 3% to 4%.

“Consequently, 2026 inventory is likely to stay flat year-on-year (y-o-y). Crude palm oil (CPO) prices are thus expected to soften moving into 2026 but stay firm as supply remains tight,” it noted.

According to Kenanga Research, its CPO price assumptions are RM4,300 per tonne for this year and RM4,000 per tonne for 2026. The research house said it likes PPB Bhd for its recovering earnings trajectory. It added that the recent news about controversies in China and Indonesia involving PPB’s associate company Wilmar International Ltd looked to be already priced in

In addition, Kuala Lumpur Kepong Bhd (KLK) should see stronger harvests and property earnings in 2026 while TSH Resources Bhd could offer longer organic growth in 2028 and 2029 from expanding planted area to about 55,000ha from 39,000ha currently.

On results for the third quarter of this year (3Q25), Kenanga Research said only 67% of the plantation companies under its coverage met or surpassed its expectations, compared with 89% in 2Q25.

However, 89% of planters met or surpassed consensus estimates in 3Q25 versus 78% in 2Q25.

It also noted the results of planters’ under its coverage inched up quarter-on-quarter (q- o-q) and y-o-y on better downstream and property performance.

“All in, upstream sales still improved q-o-q but profit slipped on weaker margins. Instead, 3Q25 earnings were lifted by stronger downstream and property profits,” it added.

Meanwhile, softer earnings for 4Q25 and next year are expected as the upstream segment faces weaker CPO prices.

Nonetheless, global edible oil supplies should improve next year while staying tight overall, said Kenanga Research.

Dividend-wise, Kenanga Research revised upward the annual dividend per share (DPS) estimates for Ta Ann Holdings Bhd for this year and next year to 40 sen with a target price of RM3.90.

It also raised KLK’s DPS forecast for 2026 and 2027 to 60 sen on stronger earnings from expected fresh fruit bunch yield recovery with a target price of RM24 per share.

The research house cut Hap Seng Plantations Holdings Bhd’s DPS for this year and next year to 11 sen due to a weaker harvest and earnings outlook.