Lang
Analysts say crude palm oil prices could reach RM4,400 per tonne this year, a slight increase from last year's average of RM4,332.
The anticipated support for crude palm oil prices will stem mainly from Indonesia's planned implementation of its B50 biodiesel policy in the second half of this year (H2 2026).
AmInvestment Bank Research (AmInvest Research) said this price level bodes well for Malaysian plantation companies, and even if crude palm oil prices fall to RM3,900, upstream sector margins—covering extraction and cultivation—are expected to remain "healthy at above 20%".
The research house said large-cap plantation stocks are currently trading at price-earnings (PE) multiples of 16 to 17 times this year's earnings, while mid-cap stocks such as Genting Plantations Bhd and Johor Plantations Group Bhd are trading at 10 to 13 times this year's earnings.
It added: "We see these valuations as attractive (not excessive) as they are below the five-year average PE of 20 times for big caps and 18 times for mid caps. At their peak, big-cap stocks traded at a PE of 30 times, while mid caps traded at 25 times."
The research house said it favours companies with substantial upstream (agricultural production) exposure, as the outlook for the refining and oleochemicals segment appears bleak.
AmInvest Research noted that among large-cap stocks, it favours SD Guthrie Bhd, as its refining operations remain profitable. In addition, the group's exposure to oleochemicals is very limited. The group's land disposals are also expected to boost SD Guthrie's cash reserves to more than RM1 billion.
Citing data from Oil World market analysts, the research house said Malaysia's crude palm oil production could fall to 19.5 million tonnes this year, compared with 19.9 million tonnes last year.
The research house forecasts 4.2% growth in the sector's net profit, while production costs per tonne are expected to rise by 3% to 5% this year due to higher wages and Employees Provident Fund contributions for foreign workers. Wages are estimated to account for between 40% and 50% of crude palm oil production costs.
The Indonesian government plans to raise the mandatory palm oil content in biodiesel to 50%. The country currently applies a mandatory biodiesel blend of 40% and is working to increase the proportion of palm oil in the mix in an effort to reduce its reliance on imported fossil fuels.
AmInvest Research said that while the full impact of Indonesia's B50 biodiesel policy will not be significantly felt until next year, news of its rollout in the second half of 2026 is expected to support and sustain crude palm oil prices in the near term.
This is because Indonesia's push to expand the domestic use of palm oil for energy often affects global vegetable oil prices, as markets anticipate reduced export supply from the world's largest producer.
The research house said: "The implementation of B50 will reduce palm oil supply by boosting demand in Indonesia. We believe the country will revise its Domestic Market Obligation (DMO) ratio to discourage exports and channel crude palm oil towards B50 production."
It added that if Indonesia is not ready for B50—since full implementation depends on financial support and the availability of feedstock and infrastructure—it may first implement B45.
The research house concluded: "Estimates suggest B50 would require additional subsidies of between US$600 million and US$800 million, which means the crude palm oil export tax and levy may need to be reviewed. However, if the price of diesel (fossil fuel) is higher than that of biodiesel, no subsidy would be needed."
Source: The Star