Lang
Leading Malaysian plantation companies are experiencing divergent analyst recommendations as higher production costs and varying output levels create a complex outlook for the sector. While Genting Plantations Bhd received upgrades following a strong first half, Johor Plantations Group Bhd saw downgrades due to weaker performance.
Genting Plantations reported core earnings of RM201.6 million for the first half of financial year 2026, meeting market expectations. Its second-quarter earnings notably tripled year-on-year to RM140.4 million, driven by robust fresh fruit bunch (FFB) production and a significant turnaround in its downstream operations. The company raised its full-year FFB output growth guidance to between 5 and 10 percent, up from approximately 5 percent previously. Despite this positive momentum, Hong Leong Investment Bank (HLIB) Research cautioned that escalating crude palm oil (CPO) production costs are expected to exert pressure on performance in the second half of the year.
Over the first seven months of 2026, Genting Plantations' FFB production surged by 10.9 percent, reaching 1.2 million tonnes, primarily benefiting from favorable weather conditions. Management maintained its FY26 CPO production cost guidance at around RM2,600 per tonne, consistent with FY25 levels, expecting stronger FFB production in the second half to partially offset higher fertilizer expenses.
HLIB Research reiterated its 'buy' recommendation for Genting Plantations, adjusting its target price upward to RM6.02, based on 14 times revised FY27 core earnings per share of 43 sen. The research firm revised its core earnings forecasts for FY26 to FY28 upwards by 1 percent, 5.3 percent, and 5.5 percent respectively. These revisions reflect higher average CPO price assumptions following sector-wide adjustments, though partly mitigated by increased production cost assumptions.
CIMB Research adopted an even more bullish stance, upgrading Genting Plantations from 'hold' to 'buy' with a target price of RM6.40. This upgrade signals the stock's potential as an 'attractive laggard play' in an environment of strengthening CPO prices. CIMB raised its FY26 and FY27 earnings forecasts by 18 percent, incorporating a RM50 per tonne CPO price upgrade for both years and anticipating higher FY26 FFB output growth of 7 percent, an increase from its previous 4 percent projection. The company's second-quarter performance was notably boosted by higher FFB production in the plantation segment and improved sales volumes and margin expansion in its downstream business.
In contrast, Johor Plantations Group experienced a less favorable first half, with core earnings of RM91.4 million falling short of market expectations due to weaker-than-anticipated FFB output. Its second-quarter core earnings stood at RM45.8 million.
HLIB Research responded by trimming Johor Plantations' FY26 and FY27 core earnings forecasts by 15 percent and 7.7 percent respectively, citing revised FFB yield assumptions. While maintaining its target price at RM1.78, HLIB downgraded the stock from 'buy' to 'hold', suggesting that the stock's 'recent price outperformance has run ahead of fundamentals'.
RHB Research also adjusted its outlook, cutting FY26 earnings by 14.5 percent but raising FY27 and FY28 earnings by 5 percent and 2.8 percent respectively. It maintained a 'buy' call and increased its target price to RM2.20 from RM1.90, indicating an 8 percent upside with approximately 4 percent FY27 yield forecasts. RHB anticipates a recovery in second-half FFB production aligned with seasonal peaks and expects CPO prices to improve quarter-on-quarter. RHB's updated CPO price assumptions for FY27 to FY28 are now RM4,500 to RM4,400 per tonne, up from RM4,300 previously.
CIMB Research made significant cuts to Johor Plantations' FY26 to FY28 earnings forecasts, reducing them by 13 percent to 22 percent. This revision followed a decrease in FFB production assumptions by approximately 10 percent, attributed to accelerated replanting, biological tree stress affecting first-half yields, and the impact of dry weather in the first quarter. These downgrades were partially offset by a RM50 per tonne increase in FY26 to FY27 CPO price assumptions. CIMB now projects Johor Plantations' FFB production to decline by 10 percent in FY26, remaining broadly flat in FY27 to FY28. Despite this, core net profit is expected to recover to RM175 million in the second half, supported by seasonally stronger FFB output, lower unit costs, and firmer CPO prices. CIMB slightly raised its target price by two sen to RM1.93 but maintained a 'hold' recommendation, citing 'near-term constraints' from the first-half earnings miss and potential 'start-up losses' at the group's inaugural integrated sustainable palm oil complex.
The contrasting analyst actions underscore the intricate landscape of the Malaysian plantation sector, which is grappling with rising input costs, weather-induced production volatility, and robust CPO prices. Companies demonstrating stronger production momentum, like Genting Plantations, appear better equipped to absorb cost pressures. Conversely, those navigating replanting cycles and yield stress, such as Johor Plantations, may experience delays in earnings recovery. Investors are closely monitoring CPO price trends, with research houses generally having raised their price assumptions amidst expectations of tighter supply. The sector's earnings trajectory in the latter half of the year will largely hinge on whether seasonal production peaks materialize and if CPO prices can sustain their upward momentum.
Source: BigGo Finance