6 days Ago By S. BIRRUNTHA
KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) has maintained its crude palm oil (CPO) price assumptions at RM4,000 per tonne for 2025 and RM3,800 for 2026. The firm said this is based on the expectation that CPO prices will remain at elevated levels, possibly until the first quarter of 2025 (1Q25), driven by weak near-term output. It noted that in terms of year-to-date, CPO price averaged at RM4,704 per tonne.
"We maintain our 'neutral' stance on the sector, as the elevated CPO price will unlikely sustain beyond 1Q25. "For exposure, our top picks are now Johor Plantations Group Bhd (JPG) and Hap Seng Plantations Holdings Bhd (HSP) and IOI Corporation Bhd," it said in a note. According to HLIB Research, fresh fruit bunches (FFB) output growth was mixed during the quarter, with only three out of eight planters, namely FGV Holdings Bhd, Genting Plantations Bhd, and HSP registered mild positive FFB output growth.
The overall subdued output growth was mainly due to excessive rainfall in Malaysia, albeit partly mitigated by crop recovery in Indonesia. "Despite mixed FFB output growth, all planters under our coverage registered positive year-on-year (YoY) upstream earnings growth in the fourth quarter of 2024 (4Q24), as mixed output growth was more than mitigated by higher realised palm product prices and lower CPO production cost. "Earnings weakness at the downstream segment was mainly due to weak refining margins and high feedstock cost but partly mitigated by improved performance at the oleochemical sub-segment," it said.
Furthermore, the firm said planters remain hopeful of achieving higher FFB output in 2025, albeit at a slower pace versus their previous guidance, underpinned by continued yield improvement. It added that CPO production cost, on the other hand, is guided to trend down further in 2025, on the back of higher output and lower fertiliser prices, while impact from minimum wage hike and mandatory EPF contribution for foreign workers will likely be manageable. For the downstream segment, HLIB Research said subdued prospects in the refining sub-segment, due to the export tax and levy differential between Malaysia and Indonesia, will be partially offset by improved near-term prospects in the oleochemical sub-segment.
This improvement is driven by the anticipated increase in demand and margins ahead of the European Union Deforestation Regulation implementation by the end of 2025.© New Straits Times Press (M) Bhd.
