23/07/2025 (Business Today) - CIMB Investment Bank Bhd (CIMB Securities) has maintained a Neutral call on Malaysia’s plantation sector, cautioning that the return of transboundary haze could pose risks to palm oil yields and production. The analysts highlighted that although listed players have implemented robust fire prevention measures, prolonged exposure to haze, particularly in estates located in Sumatra, may still affect operational performance with a time lag of up to 12 months.

The haze currently affecting parts of Malaysia has been attributed to forest fires in central Sumatra, carried over by southwesterly winds during the ongoing Southwest Monsoon. The Malaysian Meteorological Department confirmed that the prevailing dry weather, which typically extends from June to September, has created conducive conditions for fires across the region. Climate change has also been cited as a contributing factor, with rising global temperatures intensifying drought conditions in Southeast Asia. Fortunately, no strong El Niño event is anticipated for 2025.

Data from the ASEAN Specialised Meteorological Centre showed that hotspot activity in Sumatra reached its highest level in five years during June, while preliminary figures for July indicated a continued surge, with 596 hotspots recorded in the first 21 days alone. Indonesia’s own meteorological agency reported that hotspot numbers had jumped from 94 to over 1,000 in just ten days this month. While this year’s haze episode is not yet as severe as the 2019 event, analysts believe that if conditions persist, it could begin to weigh on yields through reduced photosynthesis and pollinator activity, and delayed flowering.

CIMB Securities noted that past haze episodes linked to El Niño events led to lower palm oil yields in both Malaysia and Indonesia, often appearing six to twelve months later. The current situation could therefore affect upcoming harvest cycles if conditions worsen in the coming weeks.

Another risk flagged by the analysts is legal exposure for companies found to be directly responsible for fires. In 2022, Indonesia’s Supreme Court upheld a RM60 million penalty against PT Rambang Agro Jaya, a former subsidiary of Kulim Bhd, over fire-related damages. That same year, TDM Bhd’s Indonesian unit PT Rafi Kamajaya Abadi (PTRKA) was ordered to pay over RM81 million in compensation for a 2019 blaze, along with RM193.9 million in ecological restoration costs. TDM recently announced that PTRKA has reached a settlement to pay a RM49.3 million penalty by the end of September 2025 and will submit a rehabilitation plan to regain its legal operating status.

Despite these challenges, CIMB Securities believes that most listed plantation companies have taken meaningful steps to reduce fire risk. Preventive measures disclosed in sustainability reports include zero-burning policies, fire monitoring systems, emergency response teams, and community outreach. Among the firms under coverage, SD Guthrie and Kuala Lumpur Kepong (KLK) have estates in Sumatra and could be more directly affected by the current situation.

CIMB’s recommendations remain mixed. IOI Corp and Hap Seng Plantations are rated Buy, with target prices of RM4.11 and RM2.02 respectively. SD Guthrie, KLK, Genting Plantations, and Ta Ann Holdings were all rated Hold.

https://www.businesstoday.com.my/2025/07/23/haze-risks-to-palm-oil-yields/