Lang
Hong Leong Investment Bank Research (HLIB Research) upgraded its rating on the plantation sector from neutral to overweight, expecting crude palm oil (CPO) prices to remain firm in the near to medium term, possibly until the first quarter of financial year 2026.
The research firm raised its crude palm oil price forecasts by RM100 per tonne to RM4,300 per tonne for 2025 and by RM150 per tonne to RM4,200 per tonne for 2026, citing stronger-than-expected year-to-date performance and continued tightness in palm oil supply.
In a client note issued yesterday, HLIB said the strong crude palm oil price trend is likely to persist in the near to medium term due to several supportive factors. These include the possible return of La Niña, Indonesia’s higher biodiesel mandate, and renewed concerns over slower palm oil production growth.
HLIB Research highlighted that despite the seasonally high crop cycle and weak export demand, average crude palm oil prices have remained steady at RM4,345 per tonne year to date.
The report said current supply-demand dynamics appear to be largely priced in, suggesting that tightness will persist.
The research firm added that major weather forecasts have increased the probability of La Niña developing in the fourth quarter of 2025. This could disrupt palm oil harvesting in Malaysia and Indonesia and affect soybean planting in South America.
If this materializes, such weather patterns could negatively affect global edible oil supplies, the firm said.
HLIB also pointed to structural supply constraints in the palm oil industry, highlighting concerns that slower palm oil production growth in both Malaysia and Indonesia is likely to re-emerge because of ageing trees, slow replanting, and limited new land expansion.
Indonesian government intervention, including the seizure of 674,000 hectares of oil palm plantations and investigations into another 1.8 million hectares, could limit output and discourage investment in the short term.
Indonesia’s B40 biodiesel mandate, implemented in January 2025, has also strengthened domestic consumption.
HLIB noted that biodiesel usage had reached 7.42 billion liters by mid-July 2025, equivalent to additional domestic consumption of 2 million tonnes of palm oil. The government is considering raising the blending rate to B50 in 2026, which could further tighten exportable supply.
After price and cost revisions, HLIB raised its earnings forecasts for the plantation companies under its coverage by between 0.3% and 15.8%, while adjusting target prices by between -8.8% and +12.6%.
However, stock ratings remained unchanged.
Its top picks include SD Guthrie Bhd, with a target price of RM5.76, for its diversification into renewable energy and industrial property development, and Hap Seng Plantations Holdings Bhd, with a target price of RM2.29, supported by a strong balance sheet with net cash of RM653.6 million as of June 30 and strong leverage to movements in crude palm oil prices.
The sector upgrade indicates a more positive stance on the plantation sector amid expectations of strong prices and limited global supply.