11.04.2018 (The Edge Markets MY) - KUALA LUMPUR (April 11): The suspension of the export tax on palm oil by the Malaysian Government had stimulated export demand and contributed to the decline in the inventory level, according to Affin Hwang Investment Bank's plantation sector update today.

"Take note that the Malaysian government has extended the suspension of export tax on palm oil by another month to end-April 2018," Affin Hwang analyst Nadia Aquidah said in her report.

Similarly, CIMB Investment Bank Bhd had also pointed out in its report yesterday that the strong export for palm oil in March could be partly due to the rush to export crude palm oil (CPO) ahead of the reinstatement of the CPO export tax.

It added that palm oil exports had grown by 19% month-on-month to a 29-month high of 1.57 million tonnes in March 2018, driven by stronger demand from China and India, as traders stocked up ahead of Ramadan.

Both investment banks pointed out that the strong export seen in March has kept palm oil stocks low, as seen by the 6% decline in palm oil stocks to 2.32 million tonnes despite the higher production achieved.

CIMB's analyst Ivy Ng Lee Fang said the higher CPO production seen in March 2018 of 1.57 million tonnes signals that the palm trees are recovering from the El Nino effect and new areas are coming on-stream.

Ng said planters are expected to deliver weaker quarter-on-quarter earnings in the first quarter of this year due to lower CPO prices and production. The year-on-year earnings in the first quarter is also expected to be weaker as the higher production will not be sufficient to lower prices for CPO.

Both Affin Hwang and CIMB have a neutral recommendation for the plantation sector. For Affin Hwang, the top pick in the plantation sector is Felda Global Ventures Holdings Bhd, while Genting Plantations Bhd is CIMB's top pick.