SINGAPORE (Nov 13): Analysts are optimistic on Bumitama Agri, even as the Indonesian oil palm plantation operator missed consensus earnings estimates in 3Q19 ended September.
Bumitama saw its 3Q19 earnings plunge 29.7% to 189.61 billion Indonesian rupiah ($18.3 million), despite revenue edging slightly higher by 1.4% y-o-y to IDR 1.94 trillion.
The earnings decline was mainly attributable to low crude palm oil (CPO) average selling price (ASP), low palm kernel (PK) ASP, and weaker-than-expected fresh fruit bunches (FFB) output growth.
In addition, finance cost rose 33.1% during the quarter to IDR 68.16 billion,
However, the group’s bottom line was helped by a lower foreign exchange loss of IDR 17.50 billion in 3Q19, some 36.4% lower than a foreign exchange loss of IDR 27.52 billion a year ago.
“3Q19 earnings missed our and consensus estimates on low output and prices. However, that will change in 4Q19 with the recent CPO price rally, expectations of flat quarter-on-quarter output and lower fertilising costs,” says Ong Chee Ting, an analyst at Maybank Kim Eng Research, in a report on Nov 12.
Ong is keeping his “buy” recommendation on Bumitama with an unchanged target price of 80 cents.
The way he sees it, the counter is a laggard play in the recent CPO price recovery, and offers good medium-term growth prospect.
Despite a 17.4% rally since late October, shares in Bumitama are still trading 12.9% below its recent peak of 73.5 cents in April.
“We believe the liquidity discount placed on the counter is excessive. Stronger output in the second half of the year should help to provide a buffer to earnings this year,” say DBS Group Research analysts William Simadiputra and Lim Rui Wen in a Nov 12 report.
DBS is also maintaining its “buy” call on Bumitama, and raising its target price to 72 cents, from 69 cents previously, on the back of a slightly higher earnings forecast.
“We believe Bumitama’s share price will ride along with the positive momentum of CPO price in 4Q19 which is mainly driven by the expectation of modest output expansion q-o-q and China-US trade deals which [are expected] to drive short-term soybean prices,” says DBS’ analysts.
As at 1pm, shares in Bumitama are trading 2 cents higher, or up 3.2%, at 64 cents.
According to DBS valuations, this implies an estimated price-to-earnings (P/E) ratio of 18.9 times, a price-to-book value (P/BV) of 1.4 times, and a dividend yield of 4.3% for FY19F.
