SINGAPORE (Oct 24): UOB Kay Hian is keeping Bumitama Agri at “buy” with target price of $1.03 after a visit to its estates and mill.
In a Tuesday report, analyst Leow Huey Chuen impressed by the clean and well-maintained facilities and the many fresh fruit bunches ready for harvesting in 4Q17.
“We expect FFB production to grow 18% and 17% in 2017-18 respectively,” says Leow.
Leow visited Bumitama Agri’s estates in Palangka Raya, Central Kalimantan, Indonesia. The 100,000ha estate is about nine years old.
“We remain positive on Bumitama Agri’s short- and long-term outlook. We maintain our earnings forecasts and expect EPS growth of 50% y-o-y for 2017 on the back of FFB production growth of 18% y-o-y and a stronger average CPO price of RM2,600/tonne ($835/tonne),” says the analyst.
Leow is forecasting flat net profit of Rp285-325 billion ($29-33 million) for 3Q17 as 3Q17 production was flat q-o-q mainly due to the 20-24 months’ lagged impact from the severe drought in 2015.
But he expects Bumitama Agri to register record production in 4Q17, driven by strong FFB production. During the visit, Leow noted “4-8 fresh fruit bunches (FFB) that will be ready for harvesting in Nov-Dec 17 as well as more female flowers”.
“We forecast FFB production growth of 18% y-o-y for 2017, lower than management’s guidance of +25% y-o-y. Should we adjust our FFB production growth to 25% y-o-y, our 2017 net profit forecast will rise 2.8%,” says the analyst.
Meanwhile, Bumitama Agri is planning to sett up a seed production research centre to have better control over plant materials and to choose the seeds that are suitable for its estates.
Management is targetting the first batch of its seed planting to be ready in 2021.
“We are positive on this development as it indicates Bumitama Agri’s commitment to sustainable growth,” concludes Leow.
Shares in Bumitama Agri are trading at 74 cents.
