DBS Group Research analyst William Simadiputra has maintained his “buy” rating and target price of 70 cents on Bumitama Agri (BAL).
In a Nov 8 report, he is of the view that the company will post stellar earnings in 2HFY2021, mainly on the current firm crude palm oil (CPO) price.
Simadiputra highlights that since BAL has no hedging exposure in 2HFY2021, BAL could enjoy a meaningful selling price recovery vs its 1HFY2021 level, amid the current firm Indonesia domestic crude palm oil (CPO) price.
See: Analysts increase TPs for Bumitama following positive 1H21 results
As such, he raises his FY2021/2022 earnings by 37% and 35% respectively on higher CPO selling price assumptions in 2021 and better nucleus fruits production in 2022.
He adds that CPO price is the key further upside risk to DBS’ 2022 earnings forecast, since he is seeing that the low production trend across Indonesia and Malaysia will persist in 1HFY2022.
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But he does note that BAL has an “undemanding valuation and good asset quality”, pointing at the fact that it is still trading at 9.2x FY2022 price-to-earnings (PE).
“Liquidity has also played a role, but we believe the market should not ignore BAL based on this issue alone,” he says.
Furthermore, BAL’s estates are well managed, with a low nucleus CPO cash cost level of around only Rp5,000 ($0.47) per kg.
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Simadiputra also believes that BAL’s positive 2HFY2021 earnings prospect is not priced in yet, since BAL is still trading at discount to its CPO peers.
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However, Simadiputra does highlight some key risks, like a reversal in the CPO price trend, noting there can be a downside risk to CPO prices from stronger-than-expected pressure from soybean price or higher-than-expected CPO output both in Indonesia and Malaysia in 2022.
Shares of BAL closed at 57 cents on 8 Nov, with a FY2021 price to book ratio of 1 and dividend yield of 1.8%.
