Roslai Hasan, 62, makes incisions on a rubber tree's bark to tap rubber at a plantation
at Hulu Rening in the district of Batangkali, outside Kuala Lumpur May 26, 2014.

11/11/2014 (The Straits Times) - Demand from China and rising crude palm oil prices are making some Singapore-listed plantation counters attractive again after a period when investors left them out in the cold over fears that a glut was developing in the palm oil market.

DBS Vickers noted recently that the market may have over-compensated for concerns on palm oil prices although it warned that demand in the short to medium term may continue to be "subdued" despite possible long-term bullishness arising from "scattered dryness".

Indofood Agri Resources shares have fallen 24 per cent since April this year but DBS has a buy call on the counter for "21 per cent potential upside to its target price of 98 cents".

Continued strength in crude palm oil prices may help fuel a recovery in its fourth-quarter earnings but risks remain. It cited volatility in the greenback affecting planters' profitability, and lower energy prices that may have an adverse impact on demand for vegetable oils for biofuel.

Shares in First Resources are down 21 per cent since May but DBS gave the counter a target price of $2.14, a premium over its closing price of $2.04 yesterday. It said the company's growth pipeline remains on track for 2015 and 2016.

Another boost is the completion of an integrated processing complex in Riau last year. Its combined annual refining capacity of 850,000 tonnes will enable First Resources to accommodate the expected growth in palm oil production over the next few years. But not everyone is upbeat on the palm plantation sector.

CIMB Research analyst Kenneth Ng warned in a note last month that crude palm oil and soya prices could follow crude oil prices south. This would put pressure on the earnings of commodities players while the consumer sector would be affected by the indirect impact of lower commodity prices weighing on ASEAN economies.

OCBC Investment Research maintained a hold call on Golden Agri-Resources, saying its third-quarter results due next Wednesday will be watched for its inventory levels and China operations, which may continue to bleed red ink due to the negative crush margins there.

At its second-quarter results briefing in August, its management said that it is "actively looking for solutions", which involve strategic sourcing opportunities and the possibility of shutting the plant temporarily.

CIMB analyst Ivy Ng said on Monday that she is maintaining a neutral rating on the sector, and continues to "prefer planters that offer strong output growth prospects and/or attractive valuations" such as First Resources and Astra Agro.

Spot crude palm oil prices have risen by 4 per cent in the past month to hit a three-month high of RM2,260 (S$870) per tonne due to higher soya bean and soya bean oil prices, stronger demand from China and prospects of weaker Indonesian output due to lower rainfall.

"The good news is that the crude palm oil production from Malaysia and Indonesia has peaked... and we could start to see a seasonal decline in production from now till Feb 15," Ms Ng said.