KUALA LUMPUR: Crude palm oil (CPO) prices are expected to remain elevated into 2027 as rising Indonesian biodiesel demand and potential production disruptions linked to El Nino tighten supply.

Hong Leong Investment Bank (HLIB) maintained its average CPO price forecasts at RM4,450 per tonne for 2026 and RM4,500 per tonne for 2027, citing a tightening supply-demand balance.

The research firm also retained its “Overweight” rating on the plantation sector, favouring companies with greater exposure to Malaysia.

HLIB named Hap Seng Plantations Holdings Bhd and IOI Corp Bhd as its top picks, retaining “Buy” calls with target prices of RM2.81 and RM5.16 respectively.

It expects plantation companies under its coverage to report stronger earnings in the third quarter of 2026, supported by seasonally higher production and firmer palm product prices.

Earnings are expected to be broadly in line with forecasts, with stronger upstream performance and sustained downstream contributions driving quarter-on-quarter improvements.

The upcoming reporting season begins on Nov 5.

Fresh fruit bunch (FFB) production among planters under HLIB’s coverage rose between six and 35.6 per cent quarter-on-quarter in the third quarter.

Malaysia-focused companies, including Hap Seng Plantations, IOI Corp and Jaya Tiasa Holdings Bhd, recorded stronger sequential production growth than their Indonesian peers.

HLIB said most planters benefited from yield improvements following earlier replanting efforts.

Jaya Tiasa was an exception, with output affected by an accelerated replanting programme that reduced its harvesting area and prolonged moisture stress that weighed on yields.

On a year-on-year basis, higher FFB output and palm product prices are expected to lift upstream earnings, although rising fertiliser costs could offset some gains.

Downstream profitability is also expected to improve, supported by a narrower CPO export tax differential compared with the second quarter and stable palm kernel prices.

Proactive restocking amid geopolitical uncertainties and the upcoming implementation of the European Union Deforestation Regulation is expected to provide further support.

HLIB also maintained “Buy” calls on Genting Plantations Bhd, Kuala Lumpur Kepong Bhd, Sarawak Oil Palms Bhd and TSH Resources Bhd, with target prices of RM6.12, RM23.85, RM7.05 and RM1.43 respectively.

It retained a “Hold” call on Jaya Tiasa, with a target price of RM1.84.