SINGAPORE (Sept 15): The worst is over for Malaysia’s palm oil plantations, according to a sector note by DBS Research published on Wednesday, forecasting output recovery and an export jump.

However, despite a 9% on-month increase in output in August, the recovery was still 10% below forecasts, says analyst Ben Santoso. This led to a cut of Malaysia’s full-year output forecast of 18.4 million MT, 2% below previous forecasts. September output is now expected to increase 18% on-month to 2 million MT.

August exports jumped 31% on month to S$1.5 million MT, 17% above forecasts, according to Santoso. This was driven by shipments to India, China and Europe, with demand from India stoked by Diwali festivities. The demand is expected to continue for the rest of the year owing to the monsoon season.

As inventories are refilled, September’s palm oil export volume is expected to shrink 17% on-month. However, inventories are now expected to peak at lower volumes compared to previous forecasts, Santoso notes.

Santoso advises investors to continue to be wary, citing crude palm oil prices averaging RM2,525, or 4%, lower than forecasts, and palm oil futures market being priced lower (6% for October and 9% for November) than current spot.

The analyst recommends investors take advantage of any near-term upside to realise some profit.

DBS is rating Malaysian planters Sime Darby, IOI Corp, Genting Plantations and Felda Global Ventures as “fully valued” with target prices of RM6.30, RM3.60, RM9.35 and RM1.25 respectively.

Meanwhile, the house has a “buy” for SGX-listed Bumitama Agri with 81 cents target price while IndoAgri and Wilmar are on “hold” with target prices of 48 cents and S$3.13 respectively.

Shares of Bumitama Agri are trading at 72 cents.