KUALA LUMPUR (Dec 6): Malaysia’s worst flood season in the decade occurring currently has had minimal impact on the production of crude palm oil (CPO), said TA Research.
CPO prices, which have rallied in recent weeks, would remain elevated in the near term, as the affected states (excluding Melaka) contributed up to 49.1% of Malaysia’s CPO production in January to October 2024, the research house said.
However, TA maintained its 'neutral' call on the sector, with CPO prices seen easing from the second quarter of 2025 (2Q2025), with its 2025 average forecast at RM3,800 per tonne.
The Malaysian Palm Oil Board (MPOB) did not provide a specific breakdown for Melaka, as it was included under the "other states" category.
Meanwhile, the commodity’s active futures contract traded at RM5,296 per tonne at the time of writing on Friday, following a near 40% rally since September, which extended further last month following the monsoon season. Year-to-date, CPO futures prices have risen by 45%.
The Bursa Malaysia Plantation Index is trading near its highest since mid-2022, when CPO prices topped RM7,000 per tonne due to a commodity supercycle amid conflict in war-torn Ukraine, a key producer of food oils in Europe.
Big four plantation companies
In a note, TA said every 1% decrease in fresh fruit bunch (FFB) production and 1% increase in CPO prices would result in earnings growth ranging from 0.9% to 4.2%. The big four plantation companies have faced floods affecting small parts of their estates, it added.
“FGV Holdings Bhd (KL:FGV) expects a 5% to 7% decline in FFB production in 4Q2024, due to seasonal factors and La Niña, while SD Guthrie Bhd (KL:SDG) projects a 2% to 3% increase in 2025 FFB production.
“IOI Corp Bhd (KL:IOICORP) reported minimal disruption in Pahang, maintaining a 3% to 5% year-on-year growth target. Kuala Lumpur Kepong Bhd’s (KL:KLK) northern Kelantan estates were impacted, but assessments are underway to gauge the full extent,” the house added.
“FGV’s earnings are the most sensitive to these changes, with a projected increase of approximately 4.2%. This is followed by SDG at 3.1%, United Malacca Bhd (KL:UMCCA) at 2.7%, KLK at 1.8%, TSH Resources Bhd (KL:TSH) at 1.7%, and IOI Corp at 1.3%,” it said.
The house said based on 10 years of historical CPO data from the MPOB, CPO production typically experiences a seasonal decline in 1Q, dropping by an average of 21% quarter-on-quarter, before rebounding by 18% in 2Q.
“Our research shows that over the past 10 years, second-half (2H) CPO production has outpaced 1H's by an average of 19.7%,” it added.
Similarly, BIMB Research maintained its 'neutral' call on the plantation sector, with its 2024 and 2025 average CPO price targets at about RM4,100 per tonne.
“We believe the higher current CPO price level of RM5,000 per tonne is unsustainable in 2H2025, due to risks such as potential lower demand, due to CPO's price premium over soybean oil, projected higher global soybean supply, and a seasonal pickup in CPO production,” it said.
Looking at earnings, the research house noted better-than-expected results in 3Q2024, on lower production costs and higher output, although downstream players faced margin compression.
“We favour pure planters such as Hap Seng Plantations Holdings Bhd (KL:HSPLANT) ('buy'; target price: RM2.40), and Sarawak Plantation Bhd (KL:SWKPLT) ('buy'; TP: RM2.83), as the companies benefit directly from the rally in CPO prices. Among the big-cap players, we like IOI Corp ('buy'; TP: RM4.50),” the house said.