08/07/2025 (Business Today Editorial) - Hong Leong Investment Bank Bhd (HLIB) Research has maintained its NEUTRAL call on the plantation sector despite raising its crude palm oil (CPO) price forecasts to RM4,200 per metric tonne for 2025 and RM4,050 for 2026. The brokerage cited limited supply-side expansion and the high prices recorded in the first half of the year as reasons for the upward revision.

Among its stock calls, HLIB retained Buy ratings on IOI Corporation Bhd (target price: RM4.12), Sime Darby Plantation Bhd (RM5.15), Genting Plantations Bhd (RM5.99), Kuala Lumpur Kepong Bhd (RM24.54), and Hap Seng Plantations Bhd (RM2.17), while FGV Bhd (RM1.30), TSH Resources Bhd (RM1.20) and Jaya Tiasa Holdings (downgraded to Hold, TP: RM1.27) were rated more cautiously.

According to the house, CPO prices have retreated by 19% since early 2025, primarily weighed down by a recovery in supply and muted demand as a result of the premium over competing vegetable oils. Nevertheless, the KL Plantation Index declined by only 5.2% during the same period, outperforming the broader FBMKLCI by 2.1 percentage points. This relative resilience suggests investor positioning has already accounted for the normalisation in prices, particularly in the absence of compelling themes in other sectors.

HLIB expects subdued sentiment in CPO prices to linger into the third quarter of 2025, with trading likely to range between RM3,800 and RM4,050 per tonne. This is due to seasonally higher production volumes and the lack of festive-driven restocking, compounded by continued weak biodiesel economics and trade policy uncertainty.

However, recovery is anticipated in the fourth quarter, driven by seasonally lower output beginning in September, greater clarity on global trade policies and renewed concerns over long-term supply sustainability. The latter stems from years of limited replanting and the ageing tree profile across the industry.

The research house has revised its earnings forecasts for plantation counters under coverage by 1% to 23%, driven by higher CPO price assumptions and adjustments in fresh fruit bunch (FFB) output expectations. However, HLIB has yet to factor in the potential impact of a proposed 5% sales tax on downstream plantation products, given the lack of clarity on whether exemptions would be granted for certain inputs.

Target prices were also recalibrated, reflecting valuation base year roll-forwards and adjustments to historical P/E bands for individual stocks. The changes resulted in TP revisions ranging from -9% to +10.5%, but rating calls remained mostly intact except for Jaya Tiasa, which was downgraded.

Despite improved earnings projections, HLIB continues to view the sector cautiously in the absence of strong near-term catalysts for a re-rating in CPO prices. IOI Corporation and Sime Darby Plantation remain their top picks for exposure to the sector.

https://www.businesstoday.com.my/2025/07/08/cpo-prices-could-hit-rm4200-and-rm4050-in-2026-hlib/