Hap Seng Plantation Remains Most Attractive Palm Oil Stock Despite Potential Weather Risks
02/08/2026 (Business Today) - Hap Seng Plantations Holdings Bhd remains the most attractively valued plantation stock under CGS International Research’s Malaysian coverage, supported by strong production growth, resilient margins and healthy dividend yields despite potential weather risks from an anticipated El Niño.
The research house maintained its “Add” recommendation on the stock with an unchanged target price of RM3.35, noting that Hap Seng Plantations is trading at below 10 times forecast FY2026–FY2027 earnings, alongside an estimated dividend yield of about 6%.
CGS International’s target price is based on 13 times FY2026 forecast earnings, representing a 30% discount to the plantation sector’s long-term average valuation since 2010.
Strongest Production Growth Among Peers
The research house expects Hap Seng Plantations to deliver the strongest fresh fruit bunch (FFB) production growth among Malaysian upstream plantation companies this year.
The group’s plantations are located entirely in Sabah, Malaysia’s largest palm oil-producing state, where crude palm oil (CPO) production increased 6% year-on-year during the first half of 2026, making it the country’s second-fastest growing producing state after Terengganu.
Management has maintained its FY2026 production guidance of 714,000 to 715,000 tonnes of FFB, implying annual growth of 16% to 17%.
Although CGS International has adopted a more conservative forecast of 13% production growth, it still expects Hap Seng Plantations to outperform most listed peers.
The group recorded 7% year-on-year growth in FFB production during the first half of 2026, achieving approximately 42% of the research house’s full-year production forecast.
CGS International also noted that Hap Seng Plantations has consistently delivered higher FFB yields than the Sabah state average, highlighting its strong operational efficiency.
Lower Fertiliser Costs Support Margins
The research house expects the company’s production costs to remain among the lowest in the sector over FY2026 and FY2027.
Hap Seng Plantations secured its fertiliser requirements for 2026 in April, with fertiliser costs projected to increase by only 5% to 10%, significantly below the 15% to 25% cost increases anticipated for many plantation peers.
The company may also benefit from preferential access to fertiliser supplies through its parent company, Hap Seng Consolidated Bhd, which operates a fertiliser trading business.
The combination of stronger production growth, higher realised CPO selling prices and relatively lower operating costs is expected to support earnings growth over the next two financial years.
Preparing for El Niño
Despite the positive outlook, CGS International highlighted weather risks stemming from forecasts of a strong El Niño event later this year.
According to the latest assessment by the US National Oceanic and Atmospheric Administration (NOAA), the probability of a strong El Niño developing between October and December 2026 has increased to 81%.
Management indicated that its estates have not experienced unusually dry weather during the first half of 2026 and continue to receive adequate rainfall.
Nevertheless, the company has increased water storage capacity at its reservoirs as a precautionary measure should drier conditions emerge.
During the previous strong El Niño event in 2015-2016, Hap Seng Plantations experienced a 7% decline in FFB production in 2016 due to the lagged impact of prolonged dry weather.
CGS International estimates that if a similar production decline occurs in FY2027, a 6% increase in realised CPO prices would be sufficient to offset the earnings impact, assuming other factors remain unchanged.
Positive Catalysts Remain
The research house believes Hap Seng Plantations remains well-positioned to benefit from any further strengthening in CPO prices, particularly if weather disruptions tighten global supply.
Potential upside catalysts include stronger-than-expected El Niño-induced palm oil prices and higher dividend payouts, while downside risks include rising production costs and lower-than-expected sales volumes.