SDG: Analyst Sets Positive Target Price Amid Balanced Sector Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report provides a comprehensive outlook for the plantation sector, maintaining a Neutral rating for the industry amidst expectations of a more balanced year in 2026. While the overall sector outlook points to a stable environment, specific underlying factors are expected to influence Crude Palm Oil (CPO) prices, which are forecast to be slightly lower year-on-year in 2026. However, TA SECURITIES has issued a BUY recommendation with a target price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20, signalling strong potential in a particular entity or segment within the broader sector.
CPO Price Dynamics and Outlook
The past year saw significant volatility in spot CPO prices, with a notable decline of 19.4% from a high of MYR4,920 in January 2025 to current levels of MYR3,900-4,000 per tonne. This downward trend was primarily attributed to high stock levels in Malaysia and a narrower spread between CPO and Soybean Oil (SBO), which diminished CPO’s competitiveness. Despite this volatility, the investment bank has maintained its CPO price assumptions at MYR4,250 per tonne for 2026F and MYR4,100 per tonne for 2027F, reflecting a fundamentally balanced supply and demand dynamic for the upcoming year.
Key Factors Shaping the Market in 2026
The report identifies four critical factors that will likely shape CPO prices in the near to medium term:
Positive Factors:
- La Niña Conditions: Currently weak, La Niña conditions could persist into early 2026. Should adverse weather conditions impact crop output in South America, particularly for soybeans, an increase in SBO prices would render CPO more competitive, potentially improving demand.
- Indonesia’s B50 Biodiesel Mandate: The Indonesian Government remains committed to implementing its B50 mandate in 2026, likely from the second half. A full-year implementation could lead to 17-18 million tonnes of CPO being utilized, a substantial increase from current levels. This could trigger a reactionary spike in global CPO prices, particularly if the levy on refined oils is raised to secure funding for the mandate.
Negative Factors:
- China-US Soybean Agreement: China has not met its purchase targets for US soybeans as per a previous agreement. A continued shortfall could lead to extremely high US soybean stocks in 2026, thereby exerting downward pressure on soybean and SBO prices. This would subsequently diminish CPO’s price competitiveness in the global market.
- Potential Delay in US Biofuel Policy: The US Environmental Protection Agency (EPA) is reportedly considering a delay in withdrawing fiscal incentives for foreign feedstock/biodiesel until 2027 or 2028. Such a postponement would result in a less tight SBO balance and lower SBO prices than initially expected, negatively impacting CPO’s overall competitiveness.
Outlook and Downside Risks
Overall, 2026 is expected to be a fundamentally more balanced year for the plantation sector. However, the report cautions that CPO prices will likely remain volatile due to an ever-changing geopolitical situation. Key downside risks that could affect this outlook include intensifying geopolitical risks, significant shifts in crude oil price trends impacting biodiesel mandates, unpredictable weather abnormalities affecting vegetable oil supply, changes in demand patterns driven by economic cycles, revisions in Indonesia’s tax structure and trade policies, further delays in US biofuel policy implementation, and emerging ESG (Environmental, Social, and Governance) issues.
