The plantation sector faced mixed developments in June 2024, with notable increases in crude palm oil (CPO) output and stockpiles, alongside uncertainties due to potential La Niña weather conditions. Robust upstream activity boosted production, but sluggish exports and rising stock levels signalled potential challenges ahead. MPOB-reported palm oil production reached 1.615 million metric tonnes (MT), a slight decrease month-on-month but a 12% increase year-on-year, reflecting the sector's resilience despite external pressures.

MIDF Amanah Investment Bank (MIDF), RHB Investment Bank (RHB), and Kenanga Investment Bank (Kenanga) maintained NEUTRAL stances on the sector, citing various factors impacting the market.
MIDF reported a significant rise in CPO output to 1.62 million tonnes, driven by productive activity in regions like Kedah, Negeri Sembilan, and Pahang. They highlighted concerns over potential La Niña impacts and revised their CPO target price to RM3,800 per metric tonne.
RHB pointed to rising palm oil inventory levels and the high probability of La Niña developing later in the year, maintaining a CPO price assumption of RM3,900 per tonne for 2024.

Kenanga reported that June's palm oil production, though slightly above the 10-year average, was 6% lower than their estimates. Exports fell 13% below their expectations, leading to higher quarter-on-quarter and year-on-year inventory levels. They observed that the average CPO price in June 2024 strengthened month-on-month to RM3,958 per MT, ending the first half of 2024 at RM4,011 per MT. However, Kenanga anticipates CPO prices to ease in the second half due to seasonally higher edible oil supply, maintaining a CPO price forecast of RM3,800 per MT for 2024-25.

MIDF also noted that June's ending stockpiles increased to 1.83 million tonnes due to sluggish exports and rising downstream product levels. Local CPO prices ended June at RM3,996 per metric tonne, with an average monthly price of RM3,958 per metric tonne. Despite the stable jobless rate, MIDF expressed concerns over the cooling job market and employment growth remaining below 100,000 for the second month.

RHB highlighted that palm oil inventory rose due to lower exports and production. They also pointed out that the incoming Indonesian President Prabowo Subianto's plans to boost palm oil output and maintain the biodiesel mandate could influence the market. Additionally, Hindustan Unilever's (HUL) plan to reduce palm oil content in its soaps in India by 25% could negatively affect demand, although the overall impact may be limited.

Kenanga highlighted that upstream margins are improving due to firm CPO prices and reduced costs, though downstream margins remain weak due to excess refining capacity and subdued demand for oleochemicals. They maintained a neutral outlook, preferring smaller, high-growth, and upstream-centric planters. Their top picks include PPB, TSH, and UMCCA, based on their growth potential and strategic positioning.

Top pick for the sector IOI Corp, supported by strong upstream and downstream profitability and strategic refinery and oleo plant locations. They also upgraded KLK and PPB to buy due to recent softened share prices, presenting valuable buying opportunities. RHB's top picks include IOI Corp, LSIP, and Sarawak Oil Palms (SOP), favouring both pure and integrated planters on valuation grounds.