SINGAPORE (Aug 27): Shares in Bumitama Agri are currently trading at an all-time low at 58 cents. Year to date, the stock has fallen 14.9%.
In addition, the group’s latest 2Q19 results were rather lacklustre due to weak palm oil prices and lower sales volume. Low prices of vegetable oils and high stock level of palm oil had kept palm oil prices low.
Earnings for 2Q19 came in 67.9% lower at IDR 124.6 million ($12,150) from IDR 388.1 million in 2Q18. This came on the back of a 24.3% y-o-y drop in revenue to IDR 1.8 billion, mainly attributable to the decrease in average selling prices of Crude Palm Oil (CPO) and Palm Kernel (PK).
Expenses and costs for the quarter also increased during the quarter, with selling expenses increasing 87.8% y-o-y to IDR 83.6 million, general and administrative expenses increasing 19.5% y-o-y to IDR 64.8 million and finance cost growing 19.0% y-o-y to IDR 58.1 million.
Although the group declared a 0.38 cent interim dividend, this was considerably lower than the 0.75 cent dividend declared in the corresponding period last year.
Unfortunately, the group does not foresee a recovery in palm oil prices in the near future, unless there are changes affecting supply and demand dynamics. Instead, it anticipates improvement in its production volume to provide support and mitigate the impact of low palm oil prices. It says the group will continue to strengthen its business strategies, improve cost management and increase contribution from newly matured plantations.
Nonetheless, Maybank Kim Eng is still keeping a positive stance on the stock, as it continues to rate Bumitama Agri “buy” albeit with a lower target price of 80 cents from $1.01 previously.
In an Aug 15 report, analyst Ong Chee Ting says, “Bumitama Agri remains a ‘buy’ for its medium-term growth prospect and low cost of production. Bumitama Agri offers decent dividend yields of about 3-5%, backed by its dividend payout policy of up to 40% of recurring income.”
Ong also expects the group to record better earnings in 2H19, especially in 4Q19, on seasonally stronger output and higher prices.
On the other hand, RHB Group Research is less bullish as it reiterates its “neutral” call on Bumitama Agri in an Aug 14 report. But with a lower target price of 54 cents from 62 cents previously, following the group’s disappointing 1H19 core earnings, which came in 24% of the research house’s and 14% of consensus’ 2019 forecasts.
Although management has guided during a briefing that the weather in Kalimantan is expected to normalise and that production is expected to pick up more substantially in 2H19, RHB remains sceptical and has reduced fresh fruit branch (FFB) growth projection to 2.8% for FY19 from 8%.
“CPO prices will remain the key catalyst for this pure upstream player, although Bumitama is somewhat better off than its peers, given strong double-digit FFB growth for FY20-21,” says RHB.
As at 11.55am, shares in Bumitama Agri are trading at 58 cents or 1.4 times FY19 book with a dividend yield of 1.7%, according to RHB’s estimates.
