That year, production for the same quarter amounted to 4.95 million MT before it fell over the next two years.

Kenanga Investment Bank Bhd analyst Teh Kian Yeong said the reversal was an indication that the contraction in the sector’s earnings should be near or have already hit its lowest point and a recovery was around the corner.

“With fertiliser prices falling, unit cost could also be plateauing after having risen aggressively towards the latter half of 2022,” Teh said.

The IMF Fertiliser Index had fallen 29% in just two months, from 268.9 in January to 190.6 in March.

The early 2023 fresh fruit bunches (FFB) output reports from plantation groups and the Malaysian Palm Oil Board (MPOB) suggest that production is recovering, albeit modestly.

Additionally, data suggests that the prospects of an improvement in edible oil supply in 2023 is intact despite poor ongoing soybean harvests in Argentina which is offsetting an otherwise record harvest in Brazil.

As a result, Teh expects palm oil prices to average at RM3,800 per MT over 2023 and 2024.

The quarter-on-quarter weakness for both FFB output and CPO production is seasonal. Production usually peaks in the third quarter and bottoms out in the first.

Low price by volume (PBV) ratings indicate that most of the bad news has been priced in, but Teh suggests staying neutral due to the lack of compelling upside catalyst.

“For investors seeking defensive long-term exposure, we would suggest accumulating KLK (Kuala Lumpur Kepong Bhd) among the large integrated players, TSH (TSH Resources Bhd) for long-term growth, HSPlant (Hap Seng Plantations Holdings Bhd) for income yield and PPB (PPB Group Bhd) for its recovering non-plantation businesses,” he said.

On the whole, Teh said, the plantation sector is in transition. However, a strong upside catalyst that will prompt an upgrade is missing.

As such, Kenanga is maintaining a “neutral” outlook for the sector as a whole.