Analysts from RHB Bank Singapore, UOB Kay Hian (UOBKH) and OCBC Investment Research (OIR) are positive on Indonesian palm oil company Bumitama Agri P8Z , following its 2HFY2023 results ended December which saw earnings of IDR1.26 trillion ($108 million), a 94.7% y-o-y increase.
All three brokerage firms have kept their “buy” calls — RHB has an unchanged target price of 70 cents, UOBKH has a target price of 70 cents, and OIR has a higher target price of 74 cents from 73 cents previously.
For the full year, Bumitama Agri saw an earnings decline by 13.3% y-o-y to IDR2.45 trillion, and revenue decreasing by 2.4% to IDR15.44 trillion, mainly contributed by the weakening of palm product sales price offset by increase in its sales volume.
RHB analyst says that the group’s earnings for the full year is below their estimates, but in line with Street’s expectations, at 90%-100% of FY2023 forecasts.
The group recorded a fresh fruit bunches (FFB) decline of 11.8% q-o-q in 4QFY2023, bringing its full year FFB to a decline of 3%, below RHB’s projected -0.2% y-o-y and management’s guidance of 0%-5% y-o-y for FY2023.
While external FFB output made up for it, this together with some inventory drawdown has resulted in crude palm oil (CPO) sales volume rising 13.4% y-o-y for the full year.
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Bumitama expects its FFB to grow by 3%-5% y-o-y for the FY2024, and some impact from the El Nino dry weather in the first half of the year.
RHB has therefore reduced its nucleus FFB output assumptions to reflect a lower 3%-4% growth for FY2024-FY2025, down from 5%-6% previously, but raises their external FFB output projection to reflect a 5% growth for this time period.
RHB notes that the CPO average selling price (ASP) came in stronger y-o-y in 4QFY2023, while unit costs rose 22% y-o-y in 4QFY2023 due to lower output during the quarter.
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“Post-adjustment for FY2023 results, we tweak our FY2024-FY2025 forecasts by -1.4% to +6.2%, after reducing FFB output, increasing external FFB output and reducing unit cost assumptions,” says RHB analyst. “ Valuations look attractive as Bumitama is trading at just 6.7x 2024F PE – at the low end of its peer range of 6x-12x, while it offers a handsome FY2024 dividend yield of 7.1%.”
RHB has therefore maintained its “buy” with an unchanged target price of 70 cents, based on an 8x 2024 PE.
The company, contrary to what most other companies do, has indicated it will pay a dividend for FY2023 but has yet to disclose the actual quantum.
RHB expects a dividend payout ratio of at least 45% for FY2024, based on their projected 5.8 cents for FY2023, this translates to a dividend payout ratio of 47% and yield of 8.8%.
Meanwhile, UOBKH’s analysts Jacquelyn Yow and Leow Huey Chuen say that Bumitama’s 2HFY2023 results came in within their expectations with strong sales volume and CPO production.
Despite a higher external FFB, the group still managed to deliver a good milling margin, they say. “Bumitama’s milling margin remains remarkably high at 14%-15%, a standout performance in contrast to competitors who operate at single-digit margins,” say the analysts.
Yow and Leow say that this success stemmed primarily from the group’s adeptness in procuring ample FFB despite facing escalating competition from commercial millers, which ensured that its mills operated at optimal efficiency.
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“We reckon that this was mainly undergirded by its proactive engagement with and support for smallholders,” they add.
The analysts highlight that Bumitama will face higher cost of production in 2024, by 6%-9% y-o-y mainly due to higher fertiliser application volume, as the group only applied 75%-80% of its initial target in 2023.
Bumitama has already locked in about 30% of its budgeted fertiliser volume needed for 2024, where the pricing is 5%-10% lower as compared with its last tender in 1HFY2023.
Yow and Leow maintain their earnings forecast. They say the potential upcoming dividend is expected to be at 3.5 cents per share, translating to a dividend yield of 5%.
“With the company's strong cash flow and low gearing, there may be a high possibility that the payout ratio may be higher than 40%, which would bring the total dividend for 2023 4.75 cents, bringing to a dividend yield of 7%,” they note.
Finally, OIR’s analyst Ada Lim says that despite sequentially weaker 4QFY2023 financial and operating metrics, Bumitama’s FY2023 key figures were the second highest in the company’s history.
“Bumitama’s superior productivity, high quality plantations, and continued focus on maximising its current plantations places it in a good position to deliver on above industry average yields and to capitalise on supportive long-term industry fundamentals, where the dynamics of constrained supply and growing demand should provide some resilience to CPO prices,” says Lim.
She notes that Bumitama is making “considerable, steady progress” in its sustainability journey.
The group says its on track to achieve a 30% reduction in greenhouse gas (GHG) emissions intensity by 2030 from 2016 baseline, and as at end 2022, nine out of its 15 mills and more than a third of its plantation area were certified by the roundtable on sustainable palm oil (RSPO).
Taking into the group’s FY2023 performance, and fine-tuning assumptions, Lim has increased her target price to 74 cents.
She says that group is trading at a forward 12-month PE ratio of 6x, which represents around three-quarters of a standard deviation below its five-year historical average, and current valuations remain undemanding.
As at 10.39am, shares in Bumitama Agri are trading 1 cent up or 1.55% higher at 65.5 cents.
