PETALING JAYA: Most plantation companies posted stronger performances in the fourth quarter of financial year 2024 (4Q24), primarily driven by higher palm oil prices.

In its 4Q24 report card review, Hong Leong Investment Bank (HLIB) Research noted out of eight planters under its coverage, six exceeded expectations.

These companies include FGV Holdings Bhd, Genting Plantations Bhd, Hap Seng Plantations Holdings Bhd, Johor Plantations Group Bhd, SD Guthrie Bhd and TSH Resources Bhd, all of which benefited from higher-than-expected realised palm product prices during the quarter.

Meanwhile, IOI Corp Bhd and Kuala Lumpur Kepong Bhd met HLIB Research’s expectations.

On a quarter-on-quarter basis, the research house stated higher realised palm product prices and increased output in Indonesia lifted earnings for most upstream players.

However, FGV was an exception, as it was impacted by seasonally lower fresh fruit bunch (FFB) production and weaker showing at oils and fats segment.

As for planters’ downstream earnings, HLIB Research said: “This continued to deteriorate, due mainly to weak refining margins arising from export tax and levy differentials between Malaysia and Indonesia.”

Meanwhile, planters’ year-on-year (y-o-y) performance were lifted by higher prices and lower crude palm oil (CPO) production costs.

HLIB Research said: “The FFB output growth was mixed during the quarter, with only three out of eight planters namely FGV, Genting Plantations and Hap Seng Plantations registered mild positive FFB output growth.

“The overall subdued output growth was mainly due to excessive rainfall in Malaysia albeit partly mitigated by crop recovery in Indonesia.”

Despite mixed FFB output growth, the research house added that all planters under its coverage registered positive y-o-y upstream earnings growth in 4Q24, as mixed output growth was more than mitigated by higher realised palm product prices and lower CPO production cost.

Earnings weakness at the downstream segment was mainly due to weak refining margins and high feedstock cost, it added.

Meanwhile, HLIB Research noted planters remain hopeful of achieving higher FFB output in 2025 albeit at a slower pace than their previous guidance, underpinned by continued yield improvement.

The CPO production cost is guided to trend down further in 2025, on the back of higher output and lower fertiliser prices.

The impact from the minimum wage hike and mandatory Employees Provident Fund contribution for foreign workers will likely be manageable, said HLIB Research, which expects a mixed near term outlook for planters’ downstream segment.

On CPO price forecasts, the research house stated:
“We continue to maintain our 2025 to 2026 CPO price assumptions at RM4,000 per tonne and RM3,800 per tonne, believing that CPO prices will remain elevated (possibly until 1Q25), supported by weak near-term output.”

Year-to-date, CPO price has averaged at about RM4,704 per tonne.

HLIB Research has also reiterated a neutral stance on the plantation sector as the elevated CPO price will unlikely sustain beyond 1Q25.

For exposure, its top “buy” picks are Johor Plantations with a target price (TP) of RM1.35, Hap Seng Plantations (TP: RM2.44) and IOI (TP: RM4.24), respectively.