Hong Leong Investment Bank Bhd (HLIB) maintained its OVERWEIGHT call on the plantation sector, expecting elevated crude palm oil (CPO) prices to continue through the second half of 2026, supported by tightening supply conditions and resilient demand.
The research house raised its average CPO price assumptions for 2026 and 2027 by RM100 per tonne to RM4,450 per tonne and RM4,300 per tonne respectively, with Sime Darby Plantation Bhd and Hap Seng Plantations Holdings Bhd remaining its top picks.
HLIB said potential supply disruptions from weather risks, fertiliser availability and Indonesia’s biodiesel policy could keep the global palm oil market structurally undersupplied. The research house highlighted that an El Nino event could pose a risk to palm oil output, with the impact typically appearing 12 to 24 months after the weather phenomenon affects rainfall patterns in key producing regions.
The research house also pointed to Indonesia’s planned B50 biodiesel mandate, which took effect from July 2026, as a key demand catalyst. The higher biodiesel blending requirement is expected to absorb more palm oil supply domestically, potentially reducing export availability and tightening global supply-demand conditions.
HLIB added that the wide discount between CPO and soybean oil could encourage substitution towards palm oil among major vegetable oil importers. At the time of its report, CPO was trading at a US$440 per tonne discount to soybean oil, compared with historical three-year and five-year average discounts of US$190 and US$250 respectively.
The research house continues to favour plantation companies with stronger upstream operations and higher exposure to Malaysian assets due to their greater earnings leverage from firm CPO prices. Its top picks are Sime Darby Plantation with a BUY rating and target price of RM7.05, as well as Hap Seng Plantations with a BUY rating and target price of RM2.89.
