Analysts at OCBC Investment Research (OIR), Maybank Securities and UOB Kay Hian (UOBKH) have maintained “buy” on Bumitama Agri P8Z while RHB Bank Singapore has downgraded the stock to “neutral” following the planter’s 1QFY2024 ended March results.
In her May 14 note, OIR analyst Ada Lim says Bumitama had a decent start to the year on higher sales volume. This is despite the 23% decline y-o-y in net profit due to foreign exchange headwinds from a stronger US dollar.
For 1QFY2024, Bumitama’s revenue rose 7.7% y-o-y to IDR3.9 trillion, with crude palm oil (CPO) and palm kernel (PK) performing well.
Bumitama’s productivity also improved on a y-o-y basis, Lim points out. While operating metrics were sequentially weaker q-o-q, it improved y-o-y, in line with the seasonally low 1QFY2024 cycle for palm oil production.
During the quarter, Bumitama processed 1.15 million tons of fresh fruit bunches (FFB) representing an 8% increase y-o-y. This was led by external contributions, which spiked 20% y-o-y while internal FFB volume increased by a smaller 2% y-o-y.
CPO and PK production volumes were up 9.2% and 12.1% y-o-y respectively, while oil extraction rates rose 0.4 percentage point y-o-y to 22.5%.
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In the near term, CPO prices could remain resilient with the futures market trading in backwardation — suggesting short supply, says Lim. In the medium to longer term, Indonesia’s president-elect Prabowo Subianto is planning to hike the biodiesel mandate further to B40, eventually reaching B50 by 2029. The hike to B40 is estimated to result in an increase in demand of 3.2 million kilolitres.
“Management also noted that the lauric oil market has started to rebound in early 2024 on the back of improving supply-demand dynamics,” she further highlights.
Given the 18.4% gain in share price over the last six months, RHB analysts believe valuations are now fair, with Bumitama trading at 8x 2024 P/E — which is at the mid-end of its peer range of 7x-9x. Its dividend yield of 6.5% for FY2024 should, however, provide share price support, the analysts add.
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For 2QFY2024, UOBKH analysts Jacquelyn Yow and Leow Huey Chuen expect Bumitama’s earnings to be higher q-o-q and y-o-y. This is on the back of higher CPO average selling prices and higher sales volume, which is in line with UOBKH’s expectations of higher CPO production q-o-q as well as higher mill utilisation. They also point out the rise in PK prices, which have increased by 25% since December due to the limited supply.
That said, the analysts believe the earnings growth may be partially offset by higher fertiliser volume being applied. Bumitama applied 75% to 85% of its initial target in 2023, hence there would be a catch-up in fertiliser application in 1HFY2024. The company has locked in about 75% of its 2024 fertiliser volume at prices that are lower by 15% y-o-y.
Meanwhile, Maybank’s Ong Chee Ting expects Bumitama’s earnings to pay significant catch-up in 2HFY2024 on stronger output and lower unit costs.
OIR, RHB, Maybank and UOBKH have kept their fair value estimate and target prices for Bumitama at 78.5 cents, 70 cents, 77 cents and 70 cents respectively.
As at 4.11pm, shares in Bumitama are trading 1 cent higher or 1.48% up at 68.5 cents.
