RHB Group Research has maintained its “neutral” rating on Bumitama Agri (BAL) with a higher target price of 57 cents from the previous 47 cents, representing a 2% upside with 5.5% yield.
In a Nov 15 note, the analysts point out that BAL’s 9M21 results have exceeded their expectations, coming from higher sales volume from inventory drawdowns and higher average selling price (ASP) post-forward sales contract unwinding.
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BAL booked a 69.7% y-o-y rise in its 9M21 earnings. Aside from higher fresh fruit bunches (FFB) production, the higher earnings also stemmed from higher crude palm oil (CPO) and palm kernel volume growth at 20% and 25% respectively, versus an output growth of 14% to 15%. This was due to higher external purchases and sales of inventory during the period, RHB notes.
BAL’s FFB growth of 18% y-o-y in 9M21 is also above RHB’s projection of 12.3%. The analysts kept their FFB growth forecast for FY21F, as BAL expects growth to moderate in 4Q21F.
“However, we raise our CPO sales volume growth to 15% to 20% for FY21F, taking into account inventory drawdown during the period. For FY22F to 23F, we keep our FFB and CPO output growth at 5% to 6%,” the analysts say.
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BAL had previously sold forward 75% of its 1H21 output at unfavourable prices, resulting in a realised selling price of IDR8,201, 1.5% lower y-o-y. RHB notes that with the bulk of the forward contract unwound, BAL managed to raise its ASP to IDR10,000 per kg in 3Q21, bringing 9M21 ASP to IDR8,800 per kg, a 5.7% growth y-o-y.
Due to the higher CPO sales volumes, RHB brings its FY21F cost assumptions down to reflect a 5% y-o-y decline. For FY22, the analysts expect costs to rise by 10% to 15% y-o-y, given the higher fertiliser prices.
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After adjusting for higher CPO sales volume and lower unit costs, RHB analysts raised their FY21 to 23F earnings by 5% to 25%.
“While earnings in 4Q21F should remain strong, we believe valuations are fair at current levels, taking into account our ESG discount.”
As at 4.16pm, shares in BAL are 1 cent lower or 1.77% down to 55.5 cents.
