24/06/2025 (Business Today) - Hong Leong Investment Bank Bhd (HLIB) has maintained a NEUTRAL call on the plantation sector while reiterating Buy recommendations on Sime Darby Plantation (SDG), Jaya Tiasa Holdings (JPG), and IOI Corporation, with target prices of RM5.17, RM1.35 and RM4.24 respectively. The research house said its outlook is premised on steady environmental and social improvements among planters, though governance practices continue to show uneven progress.

In its latest ESG review, HLIB noted that most planters made positive strides in environmental performance during FY24, particularly in greenhouse gas (GHG) emissions and water intensity. Four out of seven planters under coverage, including Hap Seng Plantations, JPG, KLK and SDG, recorded lower GHG intensity, attributed to initiatives like biogas installations and green energy usage. Seven out of eight planters also achieved lower water intensity, suggesting better resource efficiency and operational discipline.

Social metrics, though harder to quantify, also reflected strong intent among planters to uplift labour conditions and community engagement. Initiatives included improved worker welfare, human rights adherence and targeted community programmes, reinforcing the sector’s shift towards responsible operations.

However, governance practices remain mixed, especially in board composition. While all companies met the Malaysian Code on Corporate Governance’s minimum 50% board independence requirement, only some, such as Hap Seng Plantations and KLK, showed improvement. Others like IOI Corporation and TSH Resources posted slight declines in board independence percentages compared to the previous year. On gender diversity, HLIB reported that four of the eight planters still fall short of the 30% female representation benchmark, with FGV and SDG seeing a decline in female board presence.

The research house acknowledged that ESG compliance and disclosure had improved overall, helped by global regulations such as the EU Deforestation Regulation (EUDR), Bursa Malaysia’s sustainability mandates and climate-related disclosures. These frameworks are not only driving transparency but are also reshaping investment and lending decisions, especially from institutional stakeholders.

On the pricing front, HLIB has kept its crude palm oil (CPO) assumptions unchanged at RM4,000 per metric tonne for 2025 and RM3,800 for 2026, though it sees a slight upside bias given the year-to-date average of RM4,399 per tonne. Nevertheless, in the absence of a clear near-term demand catalyst, the bank maintains its sector-wide Neutral stance.

HLIB’s top picks: SDG, JPG and IOI are seen as best positioned to benefit from continued ESG integration and operational improvements, offering investors selective exposure to the plantation space while broader industry reforms continue to unfold.

https://www.businesstoday.com.my/2025/06/24/palm-oil-sector-improving-on-esg-practices-says-hlib/