04/08/2025 (Business Today Editorial) - Hong Leong Investment Bank Bhd (HLIB) has maintained a NEUTRAL stance on the plantation sector ahead of the second-quarter earnings season, citing the absence of strong near-term catalysts for crude palm oil (CPO) prices. The research house reaffirmed its 2025 and 2026 CPO price assumptions at RM4,200 and RM4,000 per metric tonne respectively, while retaining its top picks as IOI Corp (BUY, target price RM4.12) and SD Guthrie (BUY, target price RM5.15).

HLIB noted that most planters are expected to deliver a decent sequential performance driven by fresh fruit bunch (FFB) output recovery and stable palm oil prices, with results due to be announced from 7 August. On a quarter-on-quarter basis, FFB production under its coverage rose between 3.5% and 46%, supported by seasonal factors and favourable weather. However, the research firm cautioned that upstream earnings could remain mixed as the gains from higher output may be partially offset by weaker CPO prices and higher labour costs following the minimum wage hike implemented in February 2025.

Downstream operations are anticipated to show sequential improvement, underpinned by a narrower export tax and levy gap between Malaysia and Indonesia and lower feedstock costs for CPO and crude palm kernel oil (CPKO). Year-on-year, HLIB expects flattish upstream earnings as the benefit from higher FFB yields and normalisation in cropping patterns is likely to be neutralised by higher labour expenses. Meanwhile, downstream margins could narrow due to the high base from last year and persistently high palm kernel prices affecting oleochemical products.

On the pricing outlook, the research house observed that CPO prices averaged RM4,342 per metric tonne year-to-date and forecast that prices would remain capped in the near term due to ample global supply of vegetable oils, particularly palm oil and soybeans. It anticipates a potential uptick in the final quarter of 2025 when supply tightens.

HLIB also announced that it has ceased coverage on FGV Holdings following the Federal Land Development Authority (Felda) surpassing a 90% stake, which will result in the company’s withdrawal from Bursa Malaysia’s Main Market. Its previous HOLD rating and RM1.30 target price should no longer be referenced.

With limited upside to CPO prices and cost pressures persisting, HLIB maintained that the sector lacks a clear re-rating catalyst in the short term. However, it remains positive on select names with strong fundamentals and operational efficiency, highlighting IOI Corp and SD Guthrie as its preferred picks for exposure.

https://www.businesstoday.com.my/2025/08/04/hlib-says-palm-oil-sector-lacks-near-term-catalyst/