PETALING JAYA: Kenanga Research has maintained a bullish stance on the plantation sector as the US National Oceanic and Atmospheric Administration (NOAA) raised the likelihood of a “very strong” El Nino event occurring this year.
In its latest July 2026 update, the NOAA raised the probability of a severe El Nino occurring between October and December 2026 to 81% from a 63% chance reported in June.
Kenanga Research noted that while a weak or moderate El Nino event has a negligible effect on palm oil output, a “very strong” event – characterised by sea surface temperature deviations of two degree celcius or higher – is a different story.
Such severe conditions linked to a strong El Nino often lead to prolonged dryness lasting six months or more, which directly disrupts the fruiting and flowering cycles of oil palms, the research house stated in a sector report.
Because El Nino patterns generally emerge in the second half of the year, the most detrimental impacts on crop yields are usually realised in the subsequent year.
With the prospects of tightening supply expectations, Kenanga Research expects crude palm oil (CPO) prices to remain firm.
“We have thus raised our 2026 CPO price by 4% from RM4,250 per tonne to RM4,400 and by 6% from RM4,200 to RM4,450 in 2027 earlier in June.
“Partially pricing in the effects for now, under a very strong El Nino scenario.
“Further upward adjustments cannot be ruled out,” it noted in the report.
It added historical data shows that El Niño can trigger price spikes of 10% to 40% in subsequent quarters, but it considers a more moderate 5% to 10% uptick reasonable for now. This is because CPO prices are already elevated due to geopolitical tensions in the Middle East.
Kenanga Research maintained its “overweight” recommendation for the plantation sector, citing strong price support and potential valuation upgrades if climate conditions worsen.
IOI Corp Bhd
was its preferred stock with a target price (TP) of RM4.65 a share, Kuala Lumpur Kepong Bhd (TP: RM25.20), United Malacca Bhd (TP: RM7), TSH Resources Bhd (TP: RM1.60) and PPB Group Bhd (TP: RM13).
