PETALING JAYA: The plantation sector is entering a more constructive phase amid stronger crude palm oil (CPO) prices, supported by strengthening biodiesel demand, improving industry economics and tightening supply dynamics, says TA Research.
In particular, rising crude oil prices has enhanced biodiesel competitiveness, reinforcing policy support in key producing countries such as Indonesia and underpinning incremental demand for palm oil.
The research house in a note to clients said rising freight costs amid ongoing geopolitical tensions could further enhance palm oil’s relative competitiveness against soybean oil.
Given palm oil’s proximity to key importing markets such as India and China, TA Research said the commodity enjoys a logistical advantage, while longer-haul soybean oil shipments face higher landed costs.
“This widening cost differential is likely to encourage substitution towards palm oil to some extent, further supporting demand,” it added.
“In our view, biodiesel has transformed palm oil into a more structurally supported commodity, anchoring a higher price floor and reducing downside risks across cycles.
“This, in turn, improves earnings visibility and enhances the sector’s defensive and cyclical appeal,” the research house pointed out.
“Against this backdrop, we maintain an ‘overweight’ stance on the plantation sector, with a preference for upstream-focused players that are better positioned to benefit from stronger CPO prices.”
TA Research also believes that Malaysian plantation companies with exposure to Indonesia are key beneficiaries of the republic’s biodiesel mandates, as “they would stand to gain from both stronger CPO prices and direct domestic demand absorption”.
Among the larger players, Kuala Lumpur Kepong Bhd
(KLK) stands out given its sizeable Indonesian landbank and integrated operations, positioning the group to capture both upstream price upside and downstream optimisation opportunities.
SD Guthrie Bhd, IOI Corp Bhd and Genting Plantations Bhd would also benefit from their Indonesian exposure, although to varying degrees depending on scale and integration.
For mid-cap stocks, TA Research expects United Malacca Bhd and TSH Resources Bhd to also benefit, albeit more modestly.
Hence, the research house said, “We continue to favour upstream planters with Indonesian exposure, with KLK remaining our preferred proxy to capture the structural demand uplift from biodiesel mandates.”
However, despite improving fundamentals, TA Research noted that plantation stock re-rating is in the offing with foreign ownership still below historical levels, suggesting room for incremental inflows.
“Recently, we saw signs of selective foreign buying to position for a stronger CPO price environment.
“However, the buying interest so far appears skewed toward SD Guthrie, where foreign shareholding has picked up more noticeably.
“In contrast, KLK and IOI have yet to see a meaningful recovery in foreign participation, in our view.
“We believe this presents a catch-up opportunity, as both names remain fundamentally sound and well positioned to benefit from biodiesel-driven demand and improving sector dynamics.”
The research house, which is also bullish on the CPO price outlook, said it has revised its average price assumptions upward to RM4,300 per tonne for 2026 and RM4,200 per tonne for 2027 from RM4,000 per tonne previously.
This is underpinned by expectations of tighter global edible oil supply, driven by ongoing disruptions related to the Iran-US conflict, as well as firmer crude oil prices, which are likely to enhance biodiesel economics and support incremental demand.
