Absolutely Sumatra. And absolutely stunning move from Dan. Very creative. You said he'd be aggressive, but this was brilliantly set up and brilliantly supported by the guise in the Coral sea. In retrospect one could perhaps have guessed it as he did neither strongly (CV) contest your landings in the Hebrides, nor attempt to fight for his poor guys in the Marshals, but instead kept a very aggressive forward posture in Burma at such a time, including having US ground assets and CVs deployed. Hell, this guy's not to be underestimated! He really has now grown a huge center of gravity for his main push. Look at all these TFs!
You need to get him away from Singers and Palembang, from your tanker routes. If he can securely set up some bases in Sumatra, he'll substantially shorten his sub roundabouts, and in addition he can rather easily send some short-legged DD raiders into the Indochinese sea.
I also agree with the above posts, the islands West of Sumatra are as important as the main island. If Dan expands them and starts a serious air campaign here, the war will be over within a year, if not sooner. Without retaking the Malayan slot, you'll only be able to run resupply convoys to Burma with a long detour around the IO, and likely only under heavy cover such as KB. Burma would essentially be lost, but actually there wouldn't be any point in holding any further than the Thai border anyway. The theater would be obsolete at the moment you'd have to concede that you cannot drive Dan back this time.
Worse would be that Singers, Oosthaven, and Palembang would be under continuous air threat and getting oil and fuel home...? The further south and east he can advance and set up airbases (that is if not thrown into the sea within the next 2-3 months), the worse the air threat to bases in the whole DEI gets. And without Sumatra's, Northern Borneos, and Javas oil and resources... how long can you last?
Fingers crossed. Dan certainly brought tons of supply, and I bet he is putting the whole USAAF on Sumatra soon. Not sure if he plans on keeping the CV in action other than fleet cover, I rather expect that he'll rely on the supply brought ashore to sustain him while his LBA will probably soon provide cover from at least 1/4 the way to Colombo. I think you really need to bring about a decisive CV encounter now, one that allows to isolate Sumatra for at least 3-6 months even with CVE/BB forces. Even assuming a crushing victory in a CV encounter (which I do very much hope you'll soon be able to report!), having to keep KB around for a lengthy investment would sound to me like inviting trouble elsewhere...
Good luck and good hunting, John!