SINGAPORE (Feb 21): UOB Kay Hian is maintaining its "buy" on Bumitama Agri given its young tree-age profile with high oil extraction rate (OER) that can offset low crude palm oil (CPO) average selling price.
But UOB is trimming its target price to 96 cents as it is cutting Bumitama's 2017-19 net profit estimates by 9%, 6% and 9% respectively to factor in lower fresh fruit bunches (FFB) production growth and a higher effective tax rate for 2017.
"We forecast 4Q17 net profit of IDR330 billion–IDR370 billion ($32 million–$36 million) which is stronger q-o-q but weaker y-o-y," says analyst Leow Huey Chuen in a Wednesday report.
As for 2017, UOB's revised net profit estimate of IDR1,190 billion is marginally higher than consensus’ IDR1,174 billion.
Leow understands that Bumitama Agri's FFB production in Central Kalimantan, where 50% of its planted areas are located, fell by high-single-digit q-o-q in 4Q17 due to the lagged impact from the 20-24 months of drought ending in end 2015 and high rainfall which caused difficulties in harvesting and transporting FFB crop.
"We reckon Bumitama could report lower-than-expected FFB production in 4Q17," says Leow, " Thus, we cut our FFB production growth estimate to 20% y-o-y from 25% y-o-y for 2017. We are expecting FFB production of 0.66 million-0.73 million tonnes in 4Q17."
As of 9M17, Bumitama's effective tax rate was 25.6%. Leow reckons that the effective tax rate would not decline significantly in 4Q17. Thus, UOB is raising its effective tax rate assumption to 24% for 2017 from 21.6%.
As at Feb 21, shares in Bumitama are trading flat at 70 cents or roughly 10 times FY18 forecast earnings.
