Ada Lim of OCBC Investment Research has kept her "buy" call on Bumitama Agri P8Z , along with a raised fair value of 78.5 cents, up from 74 cents, to reflect a smaller drop in palm oil prices than earlier estimated.
In her April 3 note, Lim observes that crude palm oil (CPO) prices had enjoyed a strong start to the year, with March prices hitting the highest since last April's RM4,216 per tonne.
"Seasonally tight supply coincided with demand that was amplified by start-of-year festivities such as the Lunar New Year, Ramadan, and Eid," says Lim.
The strong support for the prices was caused by a lower output. Citing the Malaysian Palm Oil Board (MPOB), Lim says that Malaysia’s CPO production fell by 10.2% month-on-month to 1.3m tonnes in Feb 2024.
Similarly, palm oil inventory levels continued to trend downwards in Indonesia, the other major producing country, with the Indonesian Palm Oil Association reporting a slide of 14.8% year-on-year to 3.1 million tonnes as at Dec 2023.
"CPO prices may continue to trade at elevated levels in the near term, with improving output levels for Q2 onwards posing downside price risk for the rest of the year," she reasons.
For Lim, Bumitama is set to benefit from such trends given its position as a pure upstream player, coupled with its track record of leading the industry in its productivity.
Citing industry estimates for production and prices, Lim has derived a higher fair value of 78.5 cents for Bumitama, up from 74 cents, based on 6.3 times forward FY2025 earnings.
Bumitama, as at April 3, has yet to announce its final dividend for FY2023 but with Bloomberg consensus expecting it to offer a forward dividend yield of 6% and its track record, the company is increasingly seen by investors as a yield play,
"This screens relatively attractive in the Singapore market," says Lim.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Bumitama shares changed hands at 71 cents as at 4.55 pm, up 0.71%.
