Malaysian Plantation Sector: A Comprehensive Analysis of Key Players

Broker Name: UOB Kay Hian
Date of Report: Thursday, 12 December 2024

Overview of the Plantation Sector

The Malaysian plantation sector is poised for an intriguing year in 2025, with several dynamics at play. The revised Crude Palm Oil (CPO) price forecast indicates a peak in the first quarter, which is expected to impact earnings and market strategies for leading plantation companies. This report dives into the specifics of each major player in the industry, offering insights into their projected performance, strategic moves, and potential challenges.

Hap Seng Plantations Holdings Bhd (HAPL)

Hap Seng Plantations stands out as a top pick with a “BUY” recommendation. The company is well-positioned to benefit from the favorable CPO price as a domestic market seller. HAPL is maintaining a strong Fresh Fruit Bunch (FFB) production growth trajectory, making it one of the most cost-efficient plantation companies. The company’s EBIT margin was over 30% in the third quarter of 2024, significantly outperforming the peer average of 17-20%. With a target price of RM2.35, HAPL is trading at 11x 2025F PE, or -1SD to its five-year mean, indicating a promising growth potential.

Genting Plantations Berhad (GENP)

Genting Plantations is given a “HOLD” recommendation with a target price of RM6.08. The company has shown resilience despite a challenging market environment. For 2025, Genting is expected to benefit from reduced export levy charges in Indonesia, which will positively impact its earnings. However, the company’s production growth assumptions have been adjusted to reflect the ongoing uncertainties in the Malaysian estates.

IOI Corporation Berhad

With a “HOLD” recommendation and a target price of RM3.80, IOI Corporation is navigating the market cautiously. The company is focusing on maintaining its production levels while managing increased operating costs due to higher export duties and labor costs in Malaysia. IOI has also been strategically positioning itself to take advantage of any potential upside in the CPO price, although its growth projections remain modest.

Kuala Lumpur Kepong Berhad (KLK)

Kuala Lumpur Kepong is recommended as a “HOLD” with a target price of RM22.20. The company is expected to see moderate growth in 2025, supported by its diversified plantation portfolio. KLK’s operations in Malaysia are adjusting to higher export duties and labor costs, while its international operations are set to benefit from reduced palm oil export levies in Indonesia. The company’s strategy includes maintaining a balanced approach to production and cost management.

Kim Loong Resources Berhad (KML)

Kim Loong Resources is marked with a “HOLD” recommendation and a target price of RM2.30. The company is recognized for its high-yielding dividends and strong exposure to CPO price movements. KML’s operations are being closely monitored for their ability to adapt to the changing market dynamics, particularly in managing operational costs and maintaining production efficiency.

Sime Darby Plantation Berhad (SDG)

With a “HOLD” recommendation and a target price of RM5.45, Sime Darby Plantation is facing some headwinds in the market. The company is dealing with increased operating costs and a competitive landscape in Malaysia. However, its diversified operations and strategic initiatives are aimed at stabilizing its performance and capturing growth opportunities in the evolving market.

Sarawak Oil Palms Berhad (SOP)

Sarawak Oil Palms receives a “HOLD” recommendation with a target price of RM3.70. The company is expected to achieve stable growth, supported by its strategic investments and operational efficiencies. SOP is focusing on maintaining its production levels while optimizing costs to leverage the potential uptrend in CPO prices.

Conclusion

The Malaysian plantation sector presents a complex landscape with both opportunities and challenges in 2025. Companies are navigating a volatile market environment with strategic foresight and operational adjustments. Investors are advised to consider each company’s unique positioning, potential risks, and growth prospects when making investment decisions in this sector.