Bumitama Agri’s blunder on locking in its 1HFY2021 forward sales contracts at 20% to 25% lower than current prices – excluding taxes and levies – has caused analysts to downgrade the palm oil company.
This is despite the Indonesia-based company’s stellar results for FY2020 ended Dec 31.
Bumitama had expected crude palm oil (CPO) to fall after Indonesia implemented a new tax structure.
That led the company to lock in its sales contracts at a reduced price.
SEE:Bumitama Agri posts 51.9% higher earnings for 2H20 of $64.3 mil on higher revenue, fair value changes
However, CPO prices are hovering at about RM4,000 ($1,307) per metric tonne.
RHB Securities has now rated the stock with a “sell” call from “buy” previously and lowered its lower target price to 45 cents from 60 cents.
RHB says Bumitama would be selling CPO at close to cash-cost levels for January and February 2021 given the current tax structure in place.
“This is negative, especially given our view that crude palm oil (CPO) prices will only remain elevated in 1HFY2021 before moderating in 2HFY2021,” RHB says in a note dated Feb 22.
The brokerage has lowered its FY2021 earnings forecast for the company by 24%.
Meanwhile, Maybank Kim Eng has slashed its target price to 65 cents from 78 cents previously, albeit keeping its “buy” rating for the stock.
The brokerage says the substantial forward sales at low prices are “party poopers”.
As part of the contract, it notes that Bumitama is expected to bear the difference between the ultimate statutory export taxes and agreed upon US$55 ($72.60) per metric tonne export tax.
“This contract clause is negative on Bumitama’s earnings as long as CPO spot prices are high,” Maybank KE analyst Ong Chee Ting writes in a note dated Feb 22.
The brokerage has reduced its FY2021 earnings per share forecast by 10%.
As at 12.49 pm, Bumitama was down 1.5 cents or 2.9% at 49.5 cents with 2.3 million shares changed hands.
