Palm Oil Market Outlook: Firm but Competitive

The palm oil sector stands at a pivotal juncture in 2025. Crude palm oil (CPO) prices are projected to remain firm, supported by the implementation of biodiesel mandates and increased global edible oil consumption. While this offers a positive outlook, challenges from competing cheaper oils like soybean oil and potential adverse policies could limit price gains. Analysts remain optimistic about the sector’s long-term fundamentals, favoring companies with strong productivity and upstream operations.

Bumitama Agri (BAL): The Most Preferred Pick

Bumitama Agri (BAL) remains the top pick for OCBC Investment Research. Since the firm first advocated for BAL in October 2023, the company has delivered an impressive 44% return in terms of price performance as of February 14, 2025. The company’s robust performance underscores its resilience within the highly competitive plantation sector.

BAL’s 9M24 revenue aligned with expectations, yet its bottom line fell short due to continued margin pressures. Revenue for 3Q24 declined 7.6% year-on-year (YoY) to IDR4.0 trillion, impacted by muted production and a drop in CPO sales volume. However, an increase in average selling prices partially offset the decline. Persistent production challenges have delayed cost relief, as previously guided by management.

Looking ahead, BAL is set to announce its FY24 results on February 27, 2025. Market sentiment is optimistic, with Refinitiv consensus forecasting a 12-month forward dividend yield of 5.5%. The potential for a healthy dividend makes BAL a compelling choice for investors seeking value in the palm oil sector.

Recommendation: Buy

Fair Value: SGD 0.92

Last Close: SGD 0.84

Potential Upside: 10%

Golden Agri-Resources (GAR): Steady Growth Amid Challenges

Golden Agri-Resources (GAR) continues to deliver steady growth despite facing operational challenges. The company reported an 8% YoY increase in 9M24 revenue, amounting to USD7.9 billion. This growth was driven by higher sales volumes and marginally higher average CPO prices, which helped to mitigate the impact of weaker plantation output.

However, GAR’s underlying profit declined 15% YoY to USD279 million, primarily due to higher finance costs and increased income tax expenses. These factors weighed on the company’s profitability, even as it capitalized on a favorable pricing environment for CPO.

GAR is set to release its FY24 results on February 27, 2025. While the company’s fundamentals remain strong, its performance underscores the importance of addressing financial and operational inefficiencies to unlock greater value for shareholders.

Recommendation: Hold

Fair Value: SGD 0.27

Last Close: SGD 0.25

Potential Upside: 8%

Wilmar International (WIL): A Mixed Performance with Potential Upside

Wilmar International (WIL) presents a mixed performance profile, with significant upside potential linked to strategic initiatives. Although the company’s 3Q24 revenue increased marginally by 0.4% YoY to USD17.7 billion, net profit fell 19% YoY to USD254.4 million. This decline was attributed to reduced contributions from its China operations and its sugar division.

The challenges in China, where WIL derived 52% of its FY23 revenue, remain a key headwind. Recovery in this market is expected to take time, though stimulus measures could provide a boost to consumption. Additionally, WIL stands to benefit from Indonesia’s B40 biodiesel mandate, where it is the largest biodiesel producer by volume.

A noteworthy development for WIL is its agreement with Adani Commodities LLP to acquire up to a 31.06% stake in Adani Wilmar Ltd (AWL) at a maximum price of INR305/share. This potential USD1.4 billion transaction, contingent on regulatory approvals, is expected to elevate AWL from an associate to a 75%-owned subsidiary, providing WIL with a strong foothold in the Indian subcontinent. However, this will not impact WIL’s FY25 financials as the option may only be exercised 12 months from the agreement date.

WIL is scheduled to release its FY24 results on February 20, 2025. Despite short-term challenges, the company’s strategic initiatives offer long-term growth potential, particularly in high-growth markets like India and its neighboring countries.

Recommendation: Buy

Fair Value: SGD 3.54

Last Close: SGD 3.27

Potential Upside: 8%

Investment Implications and Sector Outlook

The palm oil market continues to exhibit strong supply-demand fundamentals, characterized by decelerating global production growth and robust consumer demand. While adverse weather, competition from substitute oils, and policy developments pose challenges, the long-term outlook remains constructive.

Analysts favor pure upstream players like Bumitama Agri for their ability to capitalize on elevated CPO prices, given limited downstream exposure. Vertically integrated companies may face margin pressures due to higher input costs in their mid- and downstream operations. Companies with strong productivity and efficient operations are well-positioned to thrive in the current market environment.

In the short term, plantation stocks may present trading opportunities, particularly in the first half of 2025. Investors should monitor FY24 results and dividend announcements, which could drive buoyant sentiment in the sector.