Plantation output, feedstock boost sector outlook
KUALA LUMPUR: The near-term outlook for the plantation sector has turned slightly more positive, especially for the downstream segment, thanks to improved feedstock availability, according to Hong Leong Investment Bank Bhd (HLIB).
In its sector review, HLIB noted that many plantation players are optimistic about achieving higher fresh fruit bunch (FFB) output in 2025, supported by a recovery trend that is expected to strengthen in the months ahead.
"Most planters remain optimistic in achieving higher FFB output in 2025, supported by the recent recovery, which is expected to continue over the coming months.
"Meanwhile, crude palm oil (CPO) production costs are guided to drop further in 2025 (vs 2024), driven by the anticipated increase in FFB output and lower fertiliser prices," it said in a note.
HLIB said during the recent quarterly results season, earnings for six out of eight planters under its coverage met expectations.
However, it said TSH Resources Bhd's results surpassed estimates, while FGV Holdings Bhd's results missed expectations.
HLIB also noted that performance in the downstream segment was mixed among the integrated players - namely IOI Corp Bhd, Kuala Lumpur Kepong Bhd, and SD Guthrie Bhd.
"We believe this was partly due to the uneven recovery in demand for oleochemical products across different geographical regions and different hedging positions and currency translation within the refinery segment (in our view)," it said.
Overall, HLIB has maintained its 2025 to 2026 CPO price assumptions of RM4,000 per tonnes and RM3,800 per tonnes, with the view that continued output recovery (particularly from Indonesia) will continue to cap palm oil prices over the near to medium term.
"Maintain a Neutral stance on the sector, given the absence of a clear demand catalyst (at least for now).
"For exposure, our top picks are SD Guthrie (Buy; target price: RM5.17), Johor Plantation Group Bhd (Buy; target price: RM1.35) and IOI Corp (Buy; target price : RM4.24)," it added.
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