KUALA LUMPUR (April 6): Malaysia's palm oil inventory likely grew by 2.8% month-on-month (m-o-m) to 1.56 million tonnes at end-March 2022 due to higher output, according to CGS-CIMB.

"The likely m-o-m rise in stock level is divergent compared to historical trends in Malaysia's March palm oil stock movements (average: -1% m-o-m over the past 10 years).

"Our forecast for March 2022F palm oil stock level in Malaysia of 1.56 million tonnes is 20% below the 10-year historical March average of 1.95 million tonnes, suggesting tight supplies. Official figures will be released on April 11," said CGS-CIMB's analysts Ivy Ng Lee Fang and Nagulan Ravi.

On a year-on-year (y-o-y) basis, the country's palm oil stocks likely rose by 7.9%.

In a note dated April 5, the analysts said Malaysia's crude palm oil (CPO) output probably grew 17.9% m-o-m — but fell 5.8% y-o-y — to 1.34 million tonnes in March this year.

Meanwhile, palm oil exports likely grew 7% m-o-m to 1.17 million tonnes, despite declining 0.7% y-o-y, they noted.

According to them, the removal of Domestic Market Obligation by Indonesia had led to higher export availability, causing CPO price to fall by 21% from its year-to-date peak to RM6,357 per tonne.

Furthermore, the Malaysian planters are expected to record strong first-quarter earnings as average CPO price rose 55% y-o-y and 19% q-o-q to RM6,039.5 per tonne.

CGS-CIMB reiterated its "neutral" call on the plantation sector. Its top picks are Kuala Lumpur Kepong Bhd with a target price (TP) of RM29.57, Genting Plantations Bhd (TP: RM9.18) and Hap Seng Plantations Holdings Bhd (TP: RM2.79).