While the full impact of Indonesia’s B50 biodiesel policy would only be significant next year, news of its rollout in 2H26 is expected to support and sustain CPO prices in the near term, AmInvest Research said.
PETALING JAYA: Crude palm oil (CPO) prices could reach RM4,400 per tonne this year, representing a modest increase from last year’s average of RM4,332, analysts say.
The anticipated support for CPO prices will primarily stem from the scheduled roll-out of Indonesia’s B50 biodiesel policy in the second half of this year (2H26).
That price level bodes well for Malaysian planters and even if CPO prices fall to RM3,900, profit margins for the upstream sector are still expected to come in “decent at more than 20%”, said AmInvestment Bank Research (AmInvest Research).
The research house said that large-cap plantation stocks are currently trading at price-earnings (PE) multiples of 16 times to 17 times for this year, while medium-cap stocks like Genting Plantations Bhd
and Johor Plantations Group Bhd are trading at 10 times to 13 times this year’s earnings.
“We believe that these valuations are undemanding as they are below the five-year average PEs of 20 times for the big caps and 18 times for the medium caps. At their peak, big-cap stocks were trading at a PE of 30 times, while medium caps were trading at a multiple of 25 times.”
The research house said it favours companies with large upstream exposure as the outlook for refining and oleochemicals are bleak.
AmInvest Research said, among the big-cap stocks, it likes SD Guthrie Bhd as its refining operations are still profitable.
In addition, the group has minimal exposure to oleochemicals. The group’s land disposals are also expected to boost SD Guthrie’s cash reserves to more than RM1bil.
Citing data from market analysts Oil World, the research house said CPO production in Malaysia may drop to 19.5 million tonnes this year from 19.9 million tonnes last year.
The research house forecasts sector net-profit growth of 4.2%, while cost of production per tonne is expected to rise to between 3% and 5% this year due to higher salaries and Employees Provident Fund contributions for foreign workers. Wages are estimated to account for between 40% and 50% of CPO production costs.
Indonesia’s government plans to raise the mandatory palm oil content in its biodiesel to 50%.
The country currently implements a mandatory bio content of 40% and is working to increase the amount of palm oil in the blend in a bid to reduce its reliance on imported fossil fuels.
While the full impact of Indonesia’s B50 biodiesel policy would only be significant next year, news of its rollout in 2H26 is expected to support and sustain CPO prices in the near term, AmInvest Research said.
This is because Indonesia’s push to expand palm oil use for domestic energy often influences global vegetable oil prices, as markets anticipate reduced export supply from the world’s largest producer.
“B50 would reduce palm supply by boosting demand in Indonesia. We believe that the country would revise the domestic market obligation ratio to disincentivise exports and channel CPO into B50,” the research house said.
It added that if Indonesia is not ready for B50 as the full roll-out depends on subsidies, feedstock availability and infrastructure, it may roll-out B45 first.
“It is estimated that B50 would require additional subsidies of US$600mil to US$800mil, which means that the CPO export tax and levy may need to be revised.
“However, if the price of diesel is higher than biodiesel, subsidies are not needed,” the research house added.
