Brokers' take: Analysts bullish on Bumitama Agri, expect continued rally of CPO prices

RHB Research has upgraded its call on Bumitama Agri P8Z : P8Z 0%to "buy" from "neutral" while raising its target price to S$0.90 from S$0.56, based on an unchanged 8 times FY2022 earnings estimates.

This comes after the Indonesian palm oil producer on Monday (Feb 28) beat the street's expectations with its FY2021 results.

In a report on Tuesday, the research house said it expects earnings for FY2022 to remain robust given Bumitama Agri's current focus on mostly spot selling.

Its earnings forecasts for FY2021 to FY2023 have been raised by 14 to 34 per cent after adjusting for higher crude palm oil (CPO) average selling prices, which RHB estimates to come in at RM4,300 per tonne for FY2022 and RM3,600 per tonne for FY2023.

RHB also likes the stock for its inexpensive valuations versus its peers. At the share price of S$0.73, the stock is trading below -1 standard deviation from its 5-year mean of 7 times price-to-earnings - which is unwarranted, in the research house's view.

"Assuming a dividend payout is at the maximum 40 per cent, dividend yields are also attractive at 5 per cent in FY2021 and 7 per cent in FY2022," said RHB.

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Likewise, UOB Kay Hian (UOBKH) and Maybank Securities both raised their target prices for Bumitama Agri upon factoring in higher CPO prices for the fiscal year to come. Both brokerages have unchanged "buy" recommendations on the stock.

UOBKH has adjusted its FY2022 net profit forecasts up by 35 per cent to factor in a higher CPO price assumption of RM4,200 per tonne. This has resulted in a higher target price of S$0.85 compared with S$0.65 previously, based on 7 times FY2022 earnings estimates.

"With recent CPO prices continuing to spike, we reckon that Bumitama Agri would continue to benefit with the current Indonesia tender price hovering around 17,000 rupiah per kilogram," said its analysts in a Tuesday report.

Maybank has also raised its FY2022 core Patmi (profit after tax and minority interests) estimates for the group by about 12 per cent to factor in higher CPO average selling prices of RM4,100 per tonne for FY2022 and RM3,200 per tonne in FY2023.

Its target price of S$0.98 compared with S$0.93 previously comes after rolling forward its valuation year to FY2023.

Noting that the group has little forward sales commitment in FY2022, analyst Ong Chee Ting believes the palm oil producer is poised to benefit from current spot prices, coupled with growth guidance for higher fresh fruit bunches output.

"Bumitama Agri guides that its unit cash cost of production for FY2022 will likely go up by 20 to 25 per cent year on year (from 4,500 rupiah per kilogram in FY2021). In our FY2022 forecast, we have assumed a 20 per cent year-on-year increase in unit cost," said Ong in a report on Monday.

Shares of Bumitama Agri were trading S$0.015 or 2.1 per cent higher at S$0.74 as at 10.39 am on Tuesday.

READ MORE: 

• Crude palm oil uptrend here to stay

• Food inflation risks balloon as prices of wheat to palm oil soar

• Higher prices of agri-commodities adding to inflation: analysts