PETALING JAYA: Plantation stocks are set to gain from the drier weather conditions due to a more severe El Nino affecting crop yields in oil palm estates, says Kenanga Research.
“Historically, El Nino tends to lift crude palm oil (CPO) prices, with the prices starting to increase either in the second half (2H) of the year that El Nino starts or, more often, in the 1H of the following year.
“The price changes vary considerably, from initially dipping quarter-on-quarter (q-o-q) to spiking 10% to 40% q-o-q in subsequent quarters,” it said.
The research house believes a 5% to 10% uptick can be a reasonable projection for now, considering that CPO and palm kernel prices have already been elevated since the Middle East conflict.
“We raise our 2026 CPO price forecast by 4% from RM4,250 to RM4,400, and by 6% from RM4,200 to RM4,450 in 2027.”
It said the effects of a very strong El Nino has been partially priced in for now, but upward adjustments cannot be ruled out, including valuations of price-to-book multiples.
The research house has kept an “overweight” rating on plantation stocks, with IOI Corp Bhd
, Kuala Lumpur Kepong Bhd (KLK) and TSH Resources Bhd as the top picks with “outperform” calls.
It added that other stocks offering value include PPB Group Bhd and United Malacca Bhd, both also with “outperform” calls.
Kenanga Research has a target price (TP) of RM4.65 for IOI Corp, which “is set to end its financial year ending June 30, 2026 on a strong note along with sector leading return on equity and limited earnings exposure from Indonesia (12%)”.
It pointed out that among the larger planters, KLK – at a TP of RM25.20 – offers CPO-sensitive earnings due to minimal downstream contribution while trading at a discount to other big planters possibly because of its Indonesian exposure, which has been partially priced in.
It has a TP of RM1.60 for TSH, a pure upstream CPO-sensitive play with long-term expansion underway and a valuation that has probably been discounted for its Indonesian footprint.
