Impact NEUTRAL

Measures

• The 2023 Budget indicated that GLCs and GLICs will invest RM50b in 2023. The bulk (RM45b) will go towards direct domestic investment. However, GLCs and GLICs were specifically encouraged to launch ESG frameworks, set ESG along with carbon neutrality targets.

• Whilst tabling the 12th Malaysia Plan in September last year, the Prime Minister set 2050 as the year for Malaysia to become carbon neutral. This budget reiterates this target with various incentives for solar, EV but also the promotion of a carbon market including assessing mechanisms for carbon pricing and taxation.

• Otherwise, the main agricultural focus of the Budget is on small holders, especially paddy farming, fishermen and small rubber holdings. Nevertheless, RM70m will be set aside in the Budget to help oil palm smallholders obtain their MSPO (Malaysian Sustainable Palm Oil) certification.

• Food security is the other focus with an RM80m incentive allocated for FGV’s dairy farming project which is located in the NCER (Northern Corridor Economic Region) at Chuping, Perlis.

Comments

• The 2023 Budget has no measure with major direct bearing on the plantation sector over CY22-24. As such we are maintaining our forecasts even though indirectly, the sector will gain from efforts to improve road and ports in Sabah and Sarawak including flood prevention projects.

• RSPO or Roundtable for Sustainable Palm Oil was formed in 2004. As such, the plantation industry journey towards sustainability and ESG actually started about two decades ago. Whilst there are still areas to improve, the industry has come some way already on the ESG front.

• However, we believe the sector is still in the early stages of studying carbon pricing and trading. Broadly, greenhouse gas (GHG) emission which includes CO2 is highest when land is cleared for new planting (especially peat area) and from palm oil mill effluent (POME). The former is one-off in nature whilst the latter is recurring. Other recurring emissions are often tied to decaying biomass such as empty fruit bunches (EFB) or oil palm trunk (OPT). Nevertheless, many mills have started capturing the GHG emitted from POME ponds while others are mixing POME with EFB to cut emission and produce compost. Reusing OPT felled during replanting is another area being explored. All in all, the introduction of carbon taxation will likely force the plantation sector to treat POME, EFB or OPT not as wastes but as valuable by-products. We are optimistic the plantation sector should emerge neutral to positive especially if all oil crops are subjected to carbon taxes as well. Certified palm oil already has some of the lowest GHG footprint compared to other oils. Even non certified palm oil fared better than most vegetable oils and this is before accounting for the reduction in GHG when recycling some of the palm biomass generated.

Beneficiaries

• None (meaningful ones over the immediate term).

Source: Kenanga Research - 8 Oct 2022