Plantation stocks heat up

MALAYSIA’S plantation sector looks set to remain in focus as stronger biofuel demand, supportive crude palm oil (CPO) prices and weather-related supply concerns keep investors watching for opportunities in the months ahead.

With CPO prices expected to stay elevated and demand drivers gathering pace, several research houses believe the sector still offers worthwhile exposure despite near-term fluctuations in inventories.

According to Public Investment Bank (PublicInvest) Research, UOB Kay Hian (UOBKH) Research, CIMB Research, Hong Leong Investment Bank (HLIB) Research and TA Research, the investment case rests largely on resilient palm oil prices and growing biodiesel consumption across the region.

PublicInvest Research notes that Malaysia’s palm oil inventories in May exceeded expectations as buyers shifted to cheaper Indonesian supplies.

However, it continues to favour the sector, saying it has an “overweight” call on the sector with a full-year CPO price forecast of RM4,400 per tonne.

The brokerage expects stronger prices in the second half of the year (2H26), saying: “We expect CPO prices to trade higher in 2H26 in anticipation of the El Nino development, which could be the strongest on record.”

Malaysia’s move from the B10 to B15 biodiesel mandate also strengthens domestic demand.

PublicInvest Research points out that the new blend is available at more than 4,400 petrol stations nationwide and is expected to consume about 801,000 tonnes of CPO annually, compared with 534,000 tonnes under the previous B10 programme.

UOBKH Research also sees improving demand fundamentals. It says two demand catalysts are converging to support the near-term CPO outlook, namely, the B15 biodiesel mandate and a weaker ringgit, the latter which could make Malaysian palm oil more attractive to Indian buyers.

While the brokerage cautions that slower biodiesel uptake and weak exports could result in another inventory build-up, it remains optimistic.

“We remain constructive on the sector, underpinned by structural demand growth from the expansion of regional biofuel mandates: higher blending mandates in the United States and the implementation of B50 policy in Indonesia.”

Against that backdrop, investors seeking plantation exposure have several names to consider.

Stock picks

PublicInvest Research’s preferred stocks are Sarawak Plantation Bhd with a target price (TP) of RM4.36, and Ta Ann Holdings Bhd with a TP of RM7.10, reflecting its positive outlook for CPO prices and sector earnings.

UOBKH Research favours SD Guthrie Bhd with a TP of RM6.90, Hap Seng Plantations Holdings Bhd with a TP of RM2.47, and Kuala Lumpur Kepong Bhd (KLK) with a TP of RM24.65.

It says, “We like SD Guthrie as it is a liquid big-cap play against the bullish CPO price backdrop, and is also supported by the positive narratives of its pivot towards renewable energy and industrial park development.”

The brokerage also highlights Hap Seng Plantations for its valuation and dividend appeal, while KLK is viewed as a recovery story due to improving downstream operations.

CIMB Research’s top recommendations are IOI Corp Bhd and KLK. The research house maintains “buy” calls on both counters with TPs of RM4.54 and RM23.66, respectively.

It recommends a “hold” on SD Guthrie, with a TP of RM6.47.

HLIB Research prefers Johor Plantations Group Bhd and SD Guthrie. It retains “buy” calls on both stocks with TPs of RM1.78 and RM7.05, respectively, and continues to see a supportive near-term operating environment for planters.

TA Research offers one of the broadest lists of recommendations.

It reiterates “buy” ratings on SD Guthrie (TP: RM7.36), KLK (TP: RM23.41), IOI Corp (TP: RM4.98), United Malacca Bhd (TP: RM7.84) and Kim Loong Resources Bhd (TP: RM2.82), while maintaining a “hold” call on TSH Resources Bhd (TP: RM1.34).

Elevated prices

Looking ahead, the sector outlook remains largely constructive across all five brokerages.

PublicInvest Research believes weather developments could become a key catalyst. The confirmation of developing El Nino conditions raises the possibility of lower production growth, potentially supporting higher palm oil prices if supply tightens.

UOBKH Research expects production to rise from June and peak seasonally in September and October. While this could increase supply, it believes expanding biofuel mandates across the region should provide a strong demand buffer.

The brokerage maintains CPO price forecasts of RM4,500 per tonne for 2026 and RM4,400 per tonne for 2027.

CIMB Research expects inventories to rise further in the near term, projecting Malaysian palm oil stocks to reach 2.57 million tonnes in June. Nevertheless, it sees several factors supporting prices.

“We expect CPO prices to remain elevated, with a new supportive factor emerging from Indonesia’s new palm oil export policy that came into effect on June 1, 2026,” it added.

Under the new framework, Indonesian producers must report transactions to a state-linked entity, with all exports eventually channelled through the system from 2027.

CIMB Research believes this intervention could potentially slow Indonesian exports and tighten global supply availability.

It also points to “possible El Nino-related yield disruptions”, Indonesia’s planned B50 biodiesel implementation, higher US biofuel requirements and lower fertiliser application rates as factors likely to support prices.

The main risk, it says, is demand destruction if higher prices discourage consumption.

CIMB Research maintains its CPO price forecasts of RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027, and upgraded its sector stance to “overweight”.

HLIB Research remains positive but sees some moderation ahead. It maintains its 2026 CPO price assumption of RM4,350 per tonne.

Prices are expected to stay elevated at between RM4,500 and RM4,600 per tonne during the second quarter before easing later.

The research house warns that rising fertiliser and transportation costs could pressure margins, and notes that supply-side adjustments in competing vegetable oils may create medium-term challenges.

“Nevertheless, the sector remains supported by a favourable near-term pricing environment,” it notes.

TA Research shares a similarly constructive stance, with an “overweight” stance.

It expects the CPO price to average at RM4,300 per tonne through 2026.

It says that while improved palm oil and soybean supplies may limit further gains in vegetable oil prices, it believes downside risks remain contained.

“Continued demand support from Indonesia’s B40 biodiesel programme, coupled with uncertainties surrounding the new export framework, should continue to underpin prices,” it says.

It also sees Malaysia benefitting from demand diversion due to its established and predictable export system.