Indonesian drought could lift Malaysian planters

KUALA LUMPUR: Malaysian plantation companies could benefit from firmer crude palm oil (CPO) prices in 2027 as worsening drought conditions in Indonesia threaten to tighten regional supply.

CIMB Securities Sdn Bhd said the latest production outlook from Wilmar International Ltd had reinforced concerns over drought-related supply disruptions extending into next year.

Singapore-listed Wilmar is one of the world's largest oil palm plantation groups.

As at end-2025, the group had 234,334 hectares of planted oil palm estates, with about 66 per cent in Indonesia and another 25 per cent in East Malaysia.

The agribusiness group now expects fresh fruit bunch (FFB) production at its Indonesian estates to decline this year, reversing its earlier forecast of slight growth.

The revised outlook reflects worse-than-expected drought conditions in South Sumatra and parts of Kalimantan.

"Wilmar's weaker Indonesian palm oil output outlook reinforces concerns about drought-related supply risks extending into 2027, supporting our constructive crude palm oil view," CIMB Securities said.

The research firm said tighter supply could benefit Malaysian plantation companies with estates in Malaysia, although those with significant Indonesian exposure could also face weaker FFB yields next year.

CIMB Securities maintained its "Overweight" rating on the plantation sector, with Kuala Lumpur Kepong Bhd (KLK), SD Guthrie Bhd and IOI Corporation Bhd among its preferred picks.

It maintained "Buy" calls on all three companies, with target prices of RM24.32 for KLK, RM6.52 for SD Guthrie and RM5.03 for IOI Corporation.

However, the research firm cautioned that near-term CPO price gains could be limited by elevated Malaysian palm oil inventories, weak consumption and the possibility of improved sunflower oil supply from the Black Sea region.

It said a meaningful recovery in palm oil demand from Chinese buyers would depend on a sustained price discount against soybean oil.