Structural challenges likely for plantation sector
PETALING JAYA: The plantation sector lacks catalysts moving forward with the average crude palm oil (CPO) price forecasts pegged at RM4,100 per tonne for 2025 and RM4,000 per tonne for 2026, respectively.
Phillip Capital Research, which initiated a 'neutral' rating on the sector, said the overall aggregate sector earnings is forecast to grow by 9.2% year-on-year (y-o-y) in 2025, before facing a 3.4% y-o-y earnings contraction in 2026 due to weaker palm product prices in the second half of 2025 (2H25) and persistent structural challenges.
The research house said its preferred large-cap pick is SD Guthrie Bhd with a target price of RM5.21, supported by resilient upstream contributions, strategic diversification into non-food downstream segments and embedded value from potential asset monetisation.
Furthermore, SD Guthrie's integrated structure and estate rejuvenation efforts positioned it well to weather CPO price swings while unlocking hidden land bank value over time.
Among small-cap names, Phillip Capital Research said it favoured Sarawak Plantations Bhd with a target price of RM2.88, underpinned by its young estate profile, ongoing replanting programme and steadily improving internal crops production.
The plantation group also boasts a healthy balance sheet and offers an attractive 4% dividend yield, supported by healthy free cash flows.
Sarawak Plantations' compelling enterprise value (EV) per ha valuation of less than RM20,000 per ha presented notable upside potential versus its peers, the reseach house added.
While macro headwinds such as softer CPO prices and global trade uncertainties persisted, Phillip Capital Research highlighted that valuations for selected planters are beginning to look attractive, particularly if prices stabilise and earnings recovery takes shape in 2H25.
The potential rerating catalysts for the sector include tighter global edible oil supply, supportive biodiesel mandates and renewed foreign interest in undervalued mid to large-cap names.
'In our view, the plantation sector's risk-reward is now more balanced.
'We recommend selectively accumulating upstream-focused names with younger estates, improving fresh fruit bunch yields, and efficient cost structures to capitalise on any palm oil price recovery,' it noted.
For investors seeking more stability, diversified integrated players with defensive earnings and consistent payouts warranted consideration.
Overall, the research house viewed its valuations on the sector as fair, but structural headwinds would cap upside.
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