Plantation earnings soften in Q1, but CPO outlook supports recovery
07/06/2026 (Business Today), Kuala Lumpur - Malaysia's plantation sector posts softer earnings in the first quarter of 2026 but its outlook should improve in the subsequent quarters.
Kenanga Research said a weaker seasonal output during Q1 was compounded by lower crude palm oil (CPO) prices amid higher-than-expected inventory levels.
Its analyst Khoo Teng Chuan said the sector broadly tracked expectations, although results fell short of market consensus.
Khoo expects earnings to improve ahead as CPO prices recover, although downstream margins are likely to remain under pressure.
The weaker quarter was partly due to slower-than-usual harvests, which coincided with softer selling prices caused by an inventory overhang.
In a typical Q1, seasonal production weakness often supports CPO prices, but the combination of slower demand and higher stocks weighed on margins.
Around 67 per cent of plantation companies tracked by Kenanga Research missed consensus estimates, while 56 per cent met expectations.
The earnings shortfall was largely due to weaker CPO prices, although some companies faced additional pressures.
Property earnings at several planters, including Genting Plantations Bhd and Kuala Lumpur Kepong Bhd, were softer than expected.
PPB Group Bhd's associate Wilmar International saw earnings affected by mark-to-market losses, which Kenanga Research expects could reverse in coming quarters.
Heavy rainfall also affected TSH Resources Bhd's first-quarter harvest more significantly than usual, although production has since improved.
Downstream performance was mixed, with earnings weaker quarter-on-quarter but stronger year-on-year.
Non-plantation contributions improved, supported by land disposal gains, including a RM160 million contribution from Sime Darby Guthrie Bhd, which offset slower property development profits.
Looking ahead, Kenanga Research said the sector could benefit from firmer CPO prices, with potential upside from a possible El Niño weather event in the second half of 2026.
The severity of the phenomenon remains uncertain.
The firm maintained CPO price assumptions at RM4,250 per tonne for 2026 and RM4,200 per tonne for 2027, keeping an "overweight" view on the sector.
Among preferred picks, IOI Corp Bhd was highlighted for its earnings strength and limited exposure to Indonesia, while KL Kepong offers sensitivity to CPO prices.
Smaller player TSH Resources provides upstream exposure and long-term growth potential despite its Indonesian operations, Kenanga Research said.