PETALING JAYA: The plantation sector’s outlook remains positive as crude palm oil (CPO) prices are expected to stay supported by Indonesia’s B50 biodiesel mandate, firm energy prices and demand from India, says TA Research.
However, stronger seasonal production and competitive soybean oil prices could limit further upside in the near term.
The fresh fruit bunch (FFB) production should improve seasonally in the second half of financial year 2026 (2H26), although the recovery is likely to vary across planters.
Looking into 2027, the research house noted the El-Nino is becoming a more important supply risk, particularly in Indonesia, given the usual lag between dry weather and its impact on yields.
Higher fertiliser costs could pressure production costs, while downstream margins are likely to remain mixed amid excess refining capacity and strong Indonesian competition.
Uncertainty over Indonesia’s new commodity exchange and export oversight framework could also add volatility to palm oil trade flows, pending further clarity on the final regulations.
TA Research said: “Overall, we expect CPO prices to remain firm into 2027, with stronger biodiesel demand and potential weather-related supply risks partly offset by improving near-term production.”
On the plantation sector’s second quarter of financial year 2026 performance, the research house in its review, said the planters’ results were broadly in line with expectations, with all companies under its coverage meeting expectations except for United Malacca Bhd
.
Overall, the sector earnings improved despite generally softer year-on-year (y-o-y) CPO prices, supported by better production volumes, stronger downstream contributions and operational improvements across selected companies.
It noted that IOI Corp Bhd benefitted from stronger upstream and downstream operations, while Kuala Lumpur Kepong’s (KLK) core performance improved on resilient plantation earnings and a sharp recovery in manufacturing.
Similarly, SD Guthrie also recorded a stronger quarter, supported by improved downstream margins, higher CPO production and firmer realised palm product prices, although 1H26 upstream earnings were affected by softer prices and FFB production.
Kim Loong Resources Bhd’s weaker plantation contribution was more than offset by strong milling earnings, helped by higher CPO sales volumes, improved processing efficiency and better margins.
Meanwhile, the sector performance remained uneven among the smaller planters.
TSH Resources Bhd staged a strong sequential recovery, aided by lower operating expenses and improved extraction rates, but y-o-y earnings remained affected by softer CPO prices and lower sales volumes.
TA Research noted United Malacca was the only company that missed expectations, weighed by weaker FFB output, lower palm oil prices and higher production costs.
Cumulatively, 1H26 sector core earnings rose 3.5% y-o-y, reflecting that earnings are increasingly supported by production recovery and operational execution rather than CPO price appreciation alone.
The research house has reiterated its “overweight” stance on the plantation sector, supported by a 2026 average CPO price assumption of RM4,300 per tonne.
It kept its “buy” calls on KLK with a target price (TP) of RM24.64, IOI (TP: RM5.36), United Malacca (TP: RM7.03) and Kim Loong (TP: RM2.82).
During the results season, TA Research upgraded TSH to a “buy” from “hold” following the recent share price weakness and improved risk-reward.
Meanwhile, the research house downgraded SD Guthrie to a “hold” from “buy” on valuation grounds.
The stock has appreciated 23% since TA Research’s upgrade in March.
“We believe the improved CPO outlook, stronger downstream performance and continued land-value unlocking are now largely reflected in its valuation,” it added.
Meanwhile, an analyst with a local research house said her top picks are IOI and KLK.
She favours IOI for its improving financial year 2027 upstream earnings visibility, supported by mid-single-digit FFB growth, an improving oil extraction rate and firm CPO prices.
As for KLK, the group offers a broader earnings recovery story, underpinned by improving estate productivity, continued manufacturing recovery, higher contributions from its associate three and a substantially reduced UK-listed associate Synthomer plc overhang, the analyst added.
