SOP: Palm Oil Producer Posts In-Line Earnings, Target Price Revised

Performance Review

A prominent palm oil producer reported core earnings of RM310 million for the first nine months of 2025 (9M25), marking a 6% year-on-year increase and aligning with market expectations. Third-quarter (3Q25) results demonstrated robust sequential growth, with core net profit rising 21% quarter-on-quarter. This strong performance was primarily driven by firmer average selling prices (ASP) for palm oil (PO) products, increased fresh fruit bunch (FFB) and crude palm oil (CPO) production, and effective cost management.

The company’s 9M25 revenue climbed 6% year-on-year to RM4.08 billion. Sequentially, 3Q25 revenue also saw a 2% increase. A notable improvement in the third quarter was the EBITDA margin, which expanded by 1.4 percentage points quarter-on-quarter to 13.2%, largely attributed to lower production costs. This operational efficiency helped to mitigate the impact of some earlier-year weather disruptions.

However, the 9M25 EBITDA margin for the full nine months slightly declined by 0.6 percentage points to 13% compared to the previous year. This was influenced by higher overall production costs (+6.4%) and administrative expenses (+16.7%), along with a reduced contribution from refined palm products. The company declared a second interim dividend per share (DPS) of 8 sen, bringing the total 9M25 dividends to 12 sen, putting it on track to meet its full-year forecast of 15 sen.

Future Outlook and Recommendation

Looking ahead, disciplined estate management is expected to help sustain the operational efficiency gains into 2026. While downstream margins are anticipated to remain under pressure due to intense competition, particularly from Indonesia, higher CPO availability and Sarawak’s biodiesel blending mandate are expected to support overall utilisation and profitability.

An investment bank has revised its 2026E Earnings Per Share (EPS) forecast upwards by 2.1%, reflecting a corresponding 2.5% increase in its 2026 CPO/palm kernel (PK) price assumptions to RM4,200/MT and RM2,800/MT, respectively. Consequently, the 12-month target price for the stock has been raised to RM3.52 from RM3.44, based on an unchanged 8x multiple of 2026E EPS. Despite the long-term fundamentals remaining intact, near-term upside may be constrained by persistent cost inflation, weather-sensitive yields, and a subdued oil extraction rate (OER) recovery. The recommendation for the stock is maintained at HOLD. Key risks include production volatility, commodity price fluctuations, cost inflation, regulatory uncertainties, and broader macroeconomic conditions.