According to HLIB, Malaysian palm oil producers are well positioned to comply with the European Union Deforestation Regulation (EUDR) following the finalisation of its regulatory framework, with minimal additional compliance costs expected despite an expanded list of covered products.
The research house said the European Commission’s adoption of two implementing measures has removed much of the uncertainty surrounding the regulation ahead of its scheduled implementation at the end of December 2026.
The EUDR requires companies selling regulated commodities and products in the EU to demonstrate that they are deforestation-free, legally produced and supported by appropriate due diligence documentation.
Products must originate from land that has not been subject to deforestation after Dec 31, 2020, while companies are required to assess compliance risks and submit due diligence statements through the EU Information System.
Wider Coverage For Palm Oil-Based Products
HLIB said the finalised Delegated Act expands the regulation’s scope beyond primary palm oil products, including crude palm oil, refined palm oil and palm kernel oil, to cover a wider range of downstream oleochemicals such as fatty acids, fatty alcohols and glycerine.
The expansion extends deforestation-related due diligence requirements across a larger portion of the palm oil value chain.
However, based on its discussions with integrated plantation companies under its coverage, HLIB said affected producers would have until Dec 30, 2027, to comply with the additional requirements.
The research house expects limited incremental compliance costs, as major Malaysian plantation groups have already invested in traceability systems, geographical information system (GIS) mapping and due diligence processes for products covered under the existing framework.
Some integrated plantation companies also operate downstream manufacturing facilities in Europe, which could further facilitate compliance with the expanded requirements.
HLIB said the second measure, the Implementing Act, primarily establishes technical procedures for submitting due diligence statements and simplified declarations, including contingency arrangements in the event of system outages.
It does not expect the measure to materially increase compliance costs for Malaysian plantation companies.
Regulatory Clarity Supports Malaysian Exporters
HLIB said the finalised framework provides greater certainty for Malaysian palm oil exporters, particularly integrated producers with established exposure to the European market.
The research house noted that companies have spent the past two years strengthening their supply chain traceability and compliance capabilities in preparation for the EUDR.
As a result, it believes major Malaysian plantation groups are adequately prepared to meet the regulation’s requirements when implementation begins.
HLIB Maintains Positive Palm Oil Outlook
Separately, HLIB maintained its OVERWEIGHT stance on the plantation sector, supported by expectations that elevated crude palm oil (CPO) prices will persist through the second half of 2026 amid tightening supply conditions and resilient demand.
The research house retained its average CPO price forecasts of RM4,450 per tonne for 2026 and RM4,300 per tonne for 2027.
It continues to favour plantation companies with predominantly upstream operations and greater exposure to Malaysia, citing their stronger earnings sensitivity to higher CPO prices and relatively lower exposure to foreign regulatory and policy risks.
HLIB identified IOI Corporation Berhad and Hap Seng Plantations Holdings Berhad as its preferred plantation stocks, maintaining BUY recommendations with target prices of RM5.10 and RM2.80, respectively.
