TSH: Palm Oil Sector Faces Headwinds as Stockpiles Rise, Export Demand Wanes
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The Malaysian palm oil industry experienced a mixed performance in August 2025, with rising stockpiles and declining exports contributing to a slightly bearish outlook for Crude Palm Oil (CPO) prices.
Performance Review
CPO production saw a modest increase of 2.3% month-on-month (MoM) to 1.855 million tonnes but remained 2.1% lower year-on-year (YoY). This growth was primarily driven by stronger yields in Sarawak (+19.3% MoM) and Sabah (+6.2% MoM). Concurrently, overall palm oil stockpiles accumulated for the sixth consecutive month, rising 4.2% MoM to 2.20 million tonnes, a significant 16.9% increase YoY, and exceeding market expectations.
Exports, however, declined 0.3% MoM to 1.325 million tonnes, marking a sharp 13.6% YoY contraction. Domestic usage showed a healthier trend, climbing 6.2% MoM to 490.9k tonnes. Imports, while contracting 19.7% MoM to 49.0k tonnes, were still substantially higher YoY at an increase of 391.8%. Year-to-date figures indicate CPO production up marginally by 0.2%, while exports contracted 10.8% and domestic usage surged 28.6%.
Market Dynamics and Challenges
A significant factor influencing the palm oil market is the narrowing premium of soybean oil over crude palm oil. The price difference recently dipped below USD100/tonne, making soybean oil a more attractive option for price-sensitive buyers. This development could potentially encourage a shift from palm oil to soybean oil, and if this trend persists, it is expected to exert further downward pressure on palm oil demand and prices.
Future Outlook
Looking ahead, CPO production is expected to maintain its positive momentum into the third quarter of 2025, supported by seasonal trends and intensified harvesting activities in key regions, before easing towards the year-end. The overall market sentiment for CPO prices remains slightly bearish given the current data and market dynamics.
Key downside risks to the plantation sector’s performance include a potential oversupply of South American soybean, a weaker-than-expected global demand recovery, lower-than-anticipated palm oil production, and significant reductions in production costs.
Analyst’s Stance
TA Securities maintains a “Neutral” stance on the Plantation sector, keeping its average CPO price forecast for 2025 at RM4,200/tonne. Within the sector, the firm has reaffirmed a BUY rating on TSH with a target price of RM1.30, while maintaining HOLD ratings on SDG (TP: RM5.18), KLK (TP: RM22.21), UMCCA (TP: RM5.70), and KIML (TP: RM2.31). IOICORP remains rated as a SELL with a target price of RM3.53.
