CSGI Research sees possible upside for CPO prices in the fourth quarter on potentially stronger-than-expected demand linked to US biofuel mandates.
PETALING JAYA: Pure upstream plantation companies should see sustained earnings momentum, with current crude palm oil (CPO) prices holding steady at RM4,400 per tonne analysts say.
CGS International Research (CGSI Research) has recommended accumulating local upstream planters with attractive yields, such as Hap Seng Plantations Holdings Bhd
and Ta Ann Holdings Bhd, which are best positioned to benefit directly from firm CPO prices.
CGSI Research is also positive about SD Guthrie Bhd, which is backed by ongoing non-core asset-monetisation initiatives that could lead to potential proceeds and dividend payouts.
However, the research house, which is neutral on the plantation sector overall, said: “We expect larger integrated players, such as Kuala Lumpur Kepong Bhd and IOI Corp Bhd to see limited upside due to hedging strategies that cap gains during price spikes.”
That said, CSGI Research sees possible upside for CPO prices in the fourth quarter on potentially stronger-than-expected demand linked to US biofuel mandates.
The key upside factors for prices include geopolitical tensions or policy changes that could tighten global vegetable oil availability, while downside risks include stronger-than-expected production growth in palm oil and oilseeds.
On the September data released by the Malaysian Palm Oil Board, CGSI Research described it as slightly negative, with local palm oil inventory higher than market expectations at 2.36 million tonnes, the highest since September 2023.
The higher stockpile was mainly driven by stronger-than-expected production, particularly from Sabah and Sarawak, where better yields and lower rainfall contrasted with a wetter Peninsular Malaysia.
Based on CGSI Research’s checks, local palm oil production is expected to peak this month.
Despite the recent heavy rainfall, which may negatively affect oil extraction rates, the research house believes that October will be the peak production month for this year, driven by seasonally higher fresh fruit bunch yields as estates enter the peak harvesting cycle and given the higher number of working days versus September.
Coupled with slowing growth in palm oil export momentum in October following strong exports to India in August and September ahead of the Deepavali festival season this month, the research house said Malaysia’s palm oil inventory is expected to continue to climb, with peak monthly production and slower exports.”
While the current data showed short-term bearish CPO prices given the high inventory level in Malaysia, the research house believes that recent news will support CPO prices.
“This includes the current US government shutdown, which may delay the US Environment Protection Agency’s final decision (and potential positive surprises) on the biofuel mandate to early-2026, and recent reaffirmation from the Indonesian government on its B50 biodiesel implementation,” said CGSI Research, adding that, as such, it expects CPO prices to continue trading in the range of RM4,300 to RM4,600 per tonne.
CSGI Research said its top picks include SD Guthrie, with a target price of RM5.85, Hap Seng Plantations at RM2.65 and Ta Ann at RM6.10.
