RHB Group Research analysts have maintained “buy” on Bumitama Agri (BAL) with a higher target price of 80 cents from 71 cents previously following strong 1HFY2022 results.
On the back of higher average selling prices (ASP) and fresh fruit bunches (FFB) output, BAL booked a 280% rise in 1HFY2022 earnings, which was significantly above both RHB’s and street’s expectations at 86%-98% of full year estimates.
Unlike most of its peers, BAL managed to achieve a higher ASP of IDR14,300 per kilogram in 1HFY2022 — 83% higher y-o-y — with 2QFY2022 ASP of IDR15,000 per kilogram which is 10% and 83% above 1QFY2022 and 2QFY2021’s prices.
“This was achieved despite the export ban impact, which resulted in domestic prices collapsing — likely due to BAL’s long-term relationships with its clients,” the analysts point out.
Nevertheless, 1HFY2022 crude palm oil (CPO) sales volumes fell 35% y-o-y as refiners cut back on purchases. Consequently, BAL’s inventory levels rose to about two months’ supply, approximately one month more than normal. BAL believes it will be able to normalise this by 3QFY2022, the analysts add.
BAL also recorded FFB growth of 8.7% y-o-y in 1HFY2022, above RHB’s projection of 3% but in line with management’s guidance. As it continues to see strong growth at its estates coupled with conducive weather, BAL has raised its FY2022 FFB growth guidance to 16%-18%.
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“Management also expects 1H:2H output to be in the 50%:50% range. As such, we raise our FFB growth assumption to 14% from 3% while keeping our FY23-FY24 growth at 5-6%,” say the analysts.
For 2QFY2022, BAL recorded a unit cost of IDR5,700 per kilogram, bringing 1HFY2022 costs to IDR5,200 per kilogram, 14% higher y-o-y. BAL has applied 50% of its fertiliser requirements for FY2022 so far. For 2HFY2022, costs should rise due to higher-priced fertiliser recognised, leading to overall FY2022 unit costs to rise by 20%-25% y-o-y.
RHB raises its estimates for FY2022 earnings by 45% and FY2023-FY2024 earnings by 10%-12% after imputing higher FFB growth and slightly lower unit costs.
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The analyst's target price is based on an unchanged 7x 2023 P/E, already taking into account an ESG discount of 8% given its in-house ESG score of 2.6.
“The stock is now trading at 5x 2023, even below -1SD from its 5-year mean — we believe this is unwarranted. Assuming the dividend payout is at the maximum 40%, the FY22 dividend yield is also attractive, at about 13%,” they add.
Shares in Bumitama Agri are trading at an unchanged 63.5 cents as at 10.41am.
