Various research houses have maintained positive outlooks on the plantation sector, citing lower palm oil stock levels and stable crude palm oil (CPO) prices. RHB Invesment Bank Bhd (RHB Research) reiterated its OVERWEIGHT stance, while MIDF Amanah Investment Bank (MIDF Research) maintained its TACTICAL POSITIVE rating, and CIMB Investment Bank Bhd (CIMB Securities) also kept its OVERWEIGHT call.

Palm oil stock levels in Malaysia declined to 1.58 million tonnes in January, marking a 20-month low. According to RHB Research, the drop was primarily due to lower month-on-month (MoM) production. The research house expects stock levels to stay below 2 million tonnes in the coming months, supported by a low output season and increased festive demand. Meanwhile, CIMB Securities noted that the stock level was below its forecast of 1.73 million tonnes and consensus estimates of 1.65–1.66 million tonnes.

RHB Research anticipates higher fourth-quarter earnings for plantation companies, driven by increased CPO prices. In Malaysia, fresh fruit bunch (FFB) output dipped by an average of 2.5% quarter-on-quarter, but spot CPO prices surged by 26.3% to RM4,840 per tonne. For Indonesian planters, FFB output rose by an estimated 8% quarter-on-quarter due to a delayed peak season, while net CPO prices increased by 14%. On a year-on-year (YoY) basis, Malaysian planters should also see improved earnings, as CPO prices climbed 31.6% despite lower FFB production. Indonesian planters may experience a flatter output trend but benefit from a 25.3% rise in CPO prices.

MIDF Research highlighted that the average CPO price in January rose 24% YoY to RM4,673 per tonne, ending the month at RM4,600 per tonne. It noted that production fell by 12% YoY, with significant declines in states such as Terengganu (-26%) and Negeri Sembilan (-25.3%). Heavy rainfall disrupted harvesting activities, contributing to weaker output. Looking ahead, MIDF expects a marginal 1% growth in local production for 2025, constrained by biological tree rest and the ongoing La Niña and North-East Monsoon conditions.

CIMB Securities projected further stock declines in February, expecting Malaysian palm oil inventories to drop by another 7% MoM to 1.48 million tonnes. The research house noted that the high premium of CPO over soybean oil could lead to a shift in consumer demand, pressuring exports. Additionally, Indonesia's adoption of the B40 biodiesel mandate in the first quarter could face challenges due to the significant cost premium of palm oil over gas oil. Despite this, CIMB Securities expects Malaysian planters to report stronger fourth-quarter earnings, buoyed by higher CPO prices and increased Indonesian production.

Among the top picks for the sector, RHB Research favours Johor Plantations Group, Sarawak Oil Palms, Bumitama Agri, PP London Sumatra Indonesia, and SD Guthrie. Meanwhile, MIDF Research suggests focusing on larger players with stable CPO procurement, such as IOI Corp (Target Price [TP]: RM4.42), SD Guthrie (TP: RM5.43), and Genting Plantations (TP: RM6.10). CIMB Securities also highlighted SD Guthrie, IOI Corp, and Hap Seng Plantations as its preferred stocks.

With strong CPO prices and lower inventory levels, analysts remain optimistic about the sector's prospects in the first half of 2025. However, challenges such as weather disruptions and shifting export dynamics could impact production and pricing trends in the months ahead.