SINGAPORE (Feb 19): Analysts are keeping their “buy” recommendations on Bumitama Agri (BAL), despite the Indonesian-based oil palm plantation operator missing consensus earnings estimates by a long way for FY2019 ended December.
For 4QFY2019, BAL reported earnings of 261.46 billion Indonesian rupiah ($26.5 million), some 26.1% higher than the corresponding quarter a year ago.
Stripping off foreign exchange gains and fair value gain on biological assets, 4QFY2019 core PATMI would have been 19% y-o-y lower at 185 billion rupiah.
This brought full year earnings to just 686.31 billion rupiah for FY2019 – some 37.4% lower than FY2018 earnings of 1.10 trillion rupiah.
Excluding one-off items, FY2019 core earnings were 23% below consensus full-year forecasts.
While maintaining their “buy” calls, analysts from RHB Group Research, UOB Kay Hian and Maybank Kim Eng Research are cutting their earnings forecasts – and consequently, target prices – on the stock.
RHB and UOB have both slashed their target prices to 85 cents, from 95 cents and $1.00 respectively. Meanwhile, Maybank is trimming its target price marginally by 2 cents to 78 cents.
The brokerages are also cutting their FY2020 and FY2021 earnings estimates by between 6% and 18%.
However, the analysts believe things might be looking up for BAL this year. For starters, they note that the management has guided that fresh fruit bunch (FFB) production growth may increase by up to 10% y-o-y in 2020.
“FY2020 should be a better year overall, with improved FFB output and higher crude palm oil (CPO) prices,” RHB’s Singapore research team says in a report on Feb 18.
“With FFB output recovery being seen at its estates and higher CPO prices, as a pure upstream company, BAL will continue to benefit,” the brokerage adds.
However, UOB lead analyst Leow Huey Chuen is more conservative with the production growth predictions.
“We have pencilled in FFB production growth of 3% y-o-y, taking into consideration the potential stress on FFB yield due to the severe dryness in 2019,” Leow says in a Feb 19 report. “Based on our channel checks, dryness in Central Kalimantan in 2HFY2019 was more severe than that during the 2015 El Nino. Thus, we prefer to have a more conservative stance for our production expectation.”
The way Maybank analyst Ong Chee Ting sees it, BAL remains a “buy” for its “medium-term prospect” and “decent dividend yields of around 3-5%”.
As at 3.34pm, shares in Bumitama Agri are trading half a cent higher at 68.5 cents.
According to Maybank valuations, this implies an estimated core price-to-earnings (P/E) ratio of 12.7 times, a price-to-book value (P/BV) of 1.3 times, and a net dividend yield of 3.2% for FY2020.
