Indonesia’s latest land-use regulation, Government Regulation (PP) No. 45/2025, is set to impose stricter penalties on oil palm plantations operating within designated forest zones, posing potential financial risks to several regional plantation companies, according to CGS International.
The new regulation, issued on 5 October 2025, introduces a fine of Rp25 million per hectare per year for plantations found within forest areas. It replaces PP No. 24/2021, which had previously allowed plantation owners to regularise their land through administrative fines and compliance with environmental standards.
Under the updated framework, penalties are significantly higher, and enforcement powers have been broadened — a move that reflects the Indonesian government’s renewed commitment to tightening land-use governance. Authorities estimate that between 3.0 million and 3.5 million hectares of oil palm estates currently fall within forest zones.
Potential Financial Impact on Listed Players
CGS International highlighted that, beyond the one-off impact of fines, companies could face recurring income losses if disputed lands are confiscated. The brokerage noted that direct ownership of disputed land — typically through nucleus plantations — would likely incur higher impairment risks compared to plasma plantations, which are owned by smallholders.
“Most of the disputed lands are held by smallholders, which should mitigate large-scale impairments at the corporate level,” CGS said. Nonetheless, the imposition of fines could lead to short-term share price weakness among listed plantation companies with sizeable Indonesian exposure.
In a scenario analysis, CGS estimated that roughly 500 hectares of land could be confiscated across affected plantation players over a 15-year period. The potential adverse impact on FY2025 net profit could range between 0.7% and 11%, with Genting Plantations Berhad (GENP, Hold, TP: RM5.30) and Kuala Lumpur Kepong Berhad (KLK, Hold, TP: RM20.40) likely to see the largest declines.
Sector Outlook: Malaysian Exposure Favoured
Given the regulatory uncertainty in Indonesia, CGS International recommends investors focus on plantation companies with greater exposure to Malaysia, where land-use governance remains more stable. The firm maintains a Neutral rating on the plantation sector, citing a challenging downstream environment that continues to weigh on integrated players such as KLK and IOI Corporation Berhad (IOI, Hold, TP: RM3.70).
However, the report noted potential upside in the form of firmer crude palm oil (CPO) prices expected between 4Q2025 and 1Q2026, which could sustain earnings momentum for upstream-focused producers.
Top Picks and Risks
CGS International named SD Guthrie Berhad, Hap Seng Plantations Holdings Berhad, and Ta Ann Holdings Berhad (TAH, Add, TP: RM6.10) as its top sector picks, citing stronger fundamentals and domestic concentration. The brokerage also favours Wilmar International Limited, noting its attractive valuation of 10x FY2026F P/E, below its five-year average.
Key upside risks for the sector include heightened geopolitical tensions or policy shifts that could tighten global vegetable oil supply, while downside risks stem from stronger-than-expected production in palm oil and oilseeds.
