Brokers' take: RHB downgrades Bumitama Agri to 'sell' on lower-priced forward sales

RHB on Tuesday downgraded Bumitama Agri to "sell" from "buy", with a lowered target price of S$0.45 from S$0.60. Maybank Kim Eng also cut its target price to S$0.65 from S$0.78 and maintained its "buy" call on the stock.

This came after the Indonesian palm oil producer's management said during an analyst briefing that H1 2021 forward sales contracts were locked in at prices 20-25 per cent lower than current prices, excluding taxes and levies.

"This is negative, especially given our view that crude palm oil (CPO) prices will only remain elevated in H1 2021 before moderating in H2 2021," RHB's research team said.

Bumitama Agri had entered into the sales contract in the later part of 2020 before the announcement of Indonesia's new export tax structure. The contract specified that the group is to bear the difference between ultimate statutory export taxes and the agreed-upon export tax of US$55 per tonne.

"This contract clause is negative on Bumitama Agri's earnings as long as CPO spot prices are high," Maybank KE said.

Bumitama Agri's FY2020 earnings and earnings per share (EPS) exceeded expectations for the research teams at RHB and Maybank KE respectively.

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RHB has lowered its FY2021 earnings forecast by 24 per cent but raised its forecast for FY2022 net profit by 10 per cent, after adjustments for higher palm oil fresh fruit bunches output and lower CPO prices.

Meanwhile, Maybank KE cut its estimates for FY2021 EPS by 10 per cent, but raised its estimates for FY2022 EPS by 12 per cent on higher CPO average selling prices.

Shares in Bumitama Agri closed at 51 Singapore cents on Tuesday, down 2.5 cents or about 4.7 per cent.