PETALING JAYA: Analysts expect Sarawak Oil Palms Bhd
to see a stronger third quarter of financial year 2026 (3Q26), supported by higher crude palm oil (CPO) average selling prices (ASP) as well as better prices for fresh fruit bunches (FFB).
RHB Research said the stock currently trades at 10 times financial year 2027 (FY27) price-to-earnings ratio – which is at the bottom of its peers range that are 10 times to 14 times.
However, the palm product trader’s 3% FY27 dividend yield offers some share price support.
For the time being, the haze and the El Nino phenomenon have caused some concerns for the group.
RHB Research said rainfall levels had remained normal in August this year, but haze levels were elevated.
“The Air Pollution Index across northern Sarawak is at 160 to 180 after peaking above 600 in late August.
“Prolonged haze traps heat at the ground level and suppresses pollinating weevil activity, which can crimp fruit set independently of soil moisture,” the research house explained.
In response to that, Sarawak Oil’s management has been cautious and started mitigation activities including topographic works to manage estate water levels.
Furthermore, RHB Research also pointed out that the group’s fertiliser application is behind schedule due to deliveries that were late from its suppliers.
It explained that so far, only 80% of the first half of 2026’s programme has been completed. Sarawak Oil does not see this as critical – because application remains within its internal threshold, and the shortfall is expected to be made up over the coming quarters.
RHB Research said as a result, unit costs in 3Q26 will be somewhat muted, as the catch-up in application would be offset by higher FFB output.
“Management guided for 10% year-on-year fertiliser cost growth for financial year 2026 (FY26), with overall CPO unit costs expected at about RM2,700 per tonne, broadly similar to last year and a further increase in fertiliser prices anticipated for FY27.
“Therefore, we maintain our FY26 unit cost assumption, and lift estimates for FY27 to FY28 accordingly on higher energy costs,” the research house said.
On a more positive note, the group’s downstream unit has been profitable in the first half of 2026 despite a small refinery loss. The weakness in the refinery business had begun from aggressive discounts in Indonesia since last year, as well as soft crude palm kernel oil market, where fatty acid demand was depressed by China’s overcapacity.
“As these dynamics remain unchanged, we trim FY26 margins to be more conservative, and tweak FY26 to FY28 earnings by minus 1%, plus 1.1% and minus 0.8% after imputing higher unit costs, lower operating expenditure, and lower downstream margins,” RHB Research said.
The research house also said it will maintain a “buy” call on the stock with a higher target price of RM6.75 from RM6.10.
“Our new target price is based on a higher 12 times FY27 price-to-earnings ratio, to be in line with its peers, and to better reflect its pure-play status in an elevated CPO price environment – after applying a 8% environmental, social, and governance discount to its intrinsic value.”
