Kenanga Research has raised its crude palm oil (CPO) price assumptions for 2026 and 2027 as the growing likelihood of a severe El Niño event raises concerns over potential supply disruptions.
In a research note, Kenanga said the US-based National Oceanic and Atmospheric Administration (NOAA) has reported that El Niño conditions are already present, with the probability of a severe or “very strong” El Niño event increasing sharply from 33% in May to 63% in June 2026.
Following the development, the research house raised its CPO price forecasts from RM4,250 per tonne to RM4,400 per tonne for calendar year 2026 (CY26) and from RM4,200 per tonne to RM4,450 per tonne for CY27.
Kenanga said the stronger CPO outlook has led it to upgrade earnings forecasts and target prices for plantation companies by between 1% and 4%, while maintaining its Overweight stance on the sector.
“While further CPO price upgrades cannot be ruled out, the key at this early juncture is to have exposure in the sector and stay invested,” it said.
Historically, palm oil production is most affected during very strong El Niño events, where prolonged dry conditions lasting six months or longer can disrupt oil palm flowering and fruiting cycles.
Kenanga noted that El Niño typically begins affecting crop yields in the following year, meaning a severe event emerging in the second half of 2026 could have a greater impact on production in 2027.
Based on historical observations, global palm oil supply growth could potentially swing from year-on-year growth to a contraction of between 2% and 9% during a very strong El Niño event.
The research house said tighter supply conditions could support CPO prices, with historical trends showing prices typically strengthening either in the second half of the year when El Niño begins or, more commonly, in the first half of the following year.
“Price movements have varied significantly, ranging from initial quarterly declines to subsequent spikes of 10% to 40% quarter-on-quarter,” Kenanga said.
However, it believes a more conservative 5% to 10% price increase remains reasonable at this stage, given that CPO and palm kernel prices are already elevated due to ongoing geopolitical tensions, including the Middle East conflict.
Among plantation counters, Kenanga favoured IOI Corporation Berhad, maintaining an Outperform (OP) call with a target price of RM4.65, citing expectations that the group will end its FY26 on a strong note, supported by sector-leading return on equity and limited earnings exposure from Indonesia.
It also maintained an OP rating on Kuala Lumpur Kepong Berhad (KLK) with a target price of RM25.20, noting that the company offers strong sensitivity to CPO prices due to its limited downstream exposure.
For smaller-cap exposure, Kenanga highlighted TSH Resources Berhad with an OP call and a target price of RM1.60, describing it as a pure upstream CPO-sensitive play with long-term expansion potential.
Other plantation names identified as offering value include PPB Group Berhad (OP, target price RM13.00), which Kenanga said could be oversold after trading at decade-low valuations, and United Malacca Berhad (OP, target price RM6.80), which is supported by rising fresh fruit bunch production and improving returns as its Indonesian estates mature.
Kenanga added that while its valuation multiples remain unchanged for now, further upside adjustments could be considered should a very strong El Niño scenario materialise and exert greater pressure on global palm oil supply.
