Following the delay of the EUDR (EU Deforestation Regulation) from 30 December 2024 to 30 December 2025 (for large operators and traders), the EU Commission has launched the EUDR Information System for users to submit and manage Due Diligence Statements in two formats. There will also be virtual training sessions for the EUDR Information System, which will be published on EC’s (European Commission) website regularly. We believe that there would not be further delays to EUDR as it has been postponed for a year. We reckon that the large Malaysian companies are prepared for the EUDR as they have been shipping EUDR-compliant palm products on a trial basis since last year. We think that there will be a two-tier pricing for palm products. Products shipped to the EU may be priced higher than those sold to India or China. Last year, the premium was as high as US$100/tonne. We maintain Overweight on the plantation sector with KL Kepong (KLK) and Johor Plantations Group (JPG) as our top picks. Our target prices are RM26.55/share for KLK and RM2.00/share for JPG. Our 2025F average CPO price assumptions are RM4,250/tonne for the pure Malaysian planters and RM3,950/tonne for those with Indonesia operations.

• Two formats for the submission of Due Diligence Statements. Operators and traders selling to the EU must have in place a due diligence system. Exporters have to submit due dligience statements in the two formats i.e. the live server where documents have legal value and can be checked by the authorities and the training platform. Also according to the EC, traders and operators sourcing from low risk areas will be subjected to simplified due diligence obligations and a ower proportion of inspections compared to high risk countries.  
• Not known if Malaysia will be classified as “low risk” yet. According to the EC, there will be a country benchmarking system, which will determine the deforestation and degradation risk of each country. Countries will be classified either as high risk, standard risk or low risk.. The EC is currently assessing the risk profile of each country and some of the information used include the EU Forest Map. If Malaysia is classified as low risk, it will boost demand for the country’s palm products. The country benchmarking system will be completed by 30 June 2025.
• Three steps in due diligence i.e. collecting information, assessing risk and mitigating risk. Some of the information required include the geolocation of all plots of land where the relevant commodities have been produced and a description of the product including the trade name. Risk assessment includes details such as the presence of indigenous people, consuktations and cooperation in good faith with the indigenous people and complexity of the relevant supply chiain. Risk mitigation includes having in place adequate and proportionate policies including modelling risk management practices and independent audit function. Operators must keep all documentation for at least five years and the due diligence system must be reviewed at least once a year.
• If classified as low risk, no need risk assessment and mitigation. Under low-risk classification, the operator or trader will only submit to the authorities upon request, relevant documentation demonstrating that there is negligible risk of circumvesting EUDR guidelines or mixing with products from countries classified as high or standard risk.

Source: AmInvest Research - 21 Jan 2025