SDG: Strong Earnings Momentum Driven by Operational Gains, Positive Outlook Affirmed

The plantation sector demonstrated robust performance in the third quarter of 2025, with several companies reporting earnings that met or exceeded expectations. This positive momentum was primarily fueled by strengthening average selling prices (ASPs) for Crude Palm Oil (CPO) and Palm Kernel (PK), coupled with improved Fresh Fruit Bunch (FFB) output across the region. The notable performance underscores the operational resilience and strategic gains made by industry players amidst dynamic market conditions.

Performance Review

For 3Q25, Malaysian spot CPO prices saw a healthy 5% quarter-on-quarter increase, reaching MYR4,280/tonne, while PK prices advanced 2% to MYR3,460/tonne. This pricing strength was complemented by a significant 12.5% quarter-on-quarter improvement in FFB output for Malaysian companies under coverage, as some planters achieved peak production in August/September. On a year-on-year basis, Malaysian CPO and PK prices rose 7% and 31% respectively, contributing to higher earnings for planters. Similarly, Indonesian CPO prices saw a slight improvement YoY.

While most companies were anticipated to deliver largely in-line earnings, SD Guthrie (SDG) notably surpassed expectations, partly due to a strong contribution from its new industrial segment. Other key players, including London Sumatra Indonesia (LSIP) and Astra Agro Lestari, also reported results within estimates, showcasing a generally solid performance across the board.

Market Dynamics and Challenges

Despite the strong earnings, the sector faced certain headwinds. Malaysia’s palm oil inventory climbed to a 6.5-year high of 2.46 million tonnes in October, reflecting higher output that outpaced exports. Additionally, CPO prices currently trade at a significant discount against competing oils like soybean oil and sunflower oil, posing a challenge to margins, particularly for Malaysian downstream players competing with Indonesian counterparts. For Indonesian planters with downstream operations, margins are expected to weaken quarter-on-quarter due to a narrower tax differential, although they are forecast to improve year-on-year.

Future Outlook

Looking ahead, while CPO output is expected to moderate in November/December following the peak season, and demand may ease post-festive periods, overall stock levels are projected to gradually normalize, albeit remaining above the 2 million-tonne mark. The investment bank maintains its CPO price assumptions of MYR4,350/tonne for 2025 and MYR4,250/tonne for 2026, indicating a stable, albeit cautious, price environment. The long-term demand fundamentals for vegetable oils remain supportive, with expectations of eventual narrowing of price discounts as market dynamics evolve. This balanced outlook, coupled with solid operational execution, underpins the positive recommendation for the sector.