PETALING JAYA: The plantation sector’s second half of the year (2H26) outlook remains positive, underpinned by firm crude palm oil (CPO) prices.
BIMB Research said in a note that it expected CPO prices to remain volatile but firm in 2H26, trading within the RM4,200 to RM4,800 per tonne range and averaging around RM4,500.
Retaining its “overweight” call on the sector, it said it expects companies under its coverage to deliver average core net profit growth of about 8.5% year-on-year (y-o-y) in the current financial year, underpinned by firm CPO prices and recovering production volumes, with production expected to peak in the third quarter of financial year 2026 (3Q26).
“We are positive on upstream plantation players that are better leveraged to CPO price strength,” it told clients in the report.
It added that it remained cautious on downstream manufacturing business as margins are likely to stay under pressure amid higher competition, elevated feedstock costs and potential softer demand amid inflationary pressures.
A senior plantation analyst also cautioned that CPO prices could likely be volatile, moving forward.
“However, the upstream boys are better shielded,” he told StarBiz.
BIMB Research said overall, key supporting factors for firm CPO prices are stronger edible oil demand driven by higher global biodiesel mandates, potential tightening in global palm oil supply-demand balances and El Nino risk in 2H26, which could constrain output growth.
It said aggregate core net profit of companies under its coverage declined by circa 19% quarter-on-quarter and 7% y-o-y in 1Q26, mainly due to lower realised palm product prices, seasonal low-crop cycle, and higher costs (manuring and estate upkeep).
“However, we expect earnings to improve progressively from 2Q26 onwards, supported by firmer realised CPO prices, recovering production volumes and resilient demand,” BIMB Research said.
On the whole, the research house said companies under its coverage are projected to deliver total average core net profit growth of about 8.5% in FY26.
It noted that Indonesia has commenced the implementation of its new export-control framework for strategic commodities, including palm oil.
Exporters are required to report activities to PT Danantara Sumberdaya Indonesia from June 1, while existing licences remain valid until expiry or Dec 31.
The broader framework is expected to be rolled out from 2027 onwards and at this stage, we believe the immediate direct earnings impact on companies under our coverage to be limited, according to the research house.
Among covered names, IOI Corp Bhd
, Genting Plantations Bhd and TSH Resources Bhd, primarily operate upstream businesses in Indonesia and largely supply domestic refiners, thereby limiting their direct exposure to export-related measures, it noted.
“SD Guthrie Bhd and Kuala Lumpur Kepong Bhd have downstream operations in Indonesia, although these facilities are largely integrated within their existing supply chains, resulting in relatively contained near-term exposure,” it said.
“Nevertheless, we continue to monitor further regulatory developments and implementation details as the policy framework evolves.”
BIMB Research said fertiliser remains the key cost risk, accounting for about 20% to 30% of unit costs, with prices rising in recent months amid higher natural gas prices and Middle East supply chain disruptions, particularly for nitrogen and phosphate-based fertilisers.
“Nevertheless, prices remain below the peak levels seen at the start of the Russia-Ukraine conflict in 2022.”
