Expecting earnings to remain robust in FY22, analysts at RHB Group Research and UOB Kay Hian Research have upgraded and kept their “buy” calls for Bumitama Agri (BAL) with higher target prices of 90 cents and 85 cents respectively.
With recent crude palm oil (CPO) prices continuing to spike, UOB KH analysts Leow Huey Chuen and Jacquelyn Yow Hui Li expect BAL to continue benefiting with the current Indonesia tender price hovering around INR17,000 per kg.
Meanwhile, RHB analysts note that BAL managed to achieve a higher average selling price of INR13,500 per kg in 4Q — a 55% increase y-o-y — resulting in a realised selling price of INR9,852 for FY21. For FY22, it has some minimal forward sales locked in a year ago which have yet to be realised, but the amount is insignificant.
“Other than this, it is not engaging in any more forward sales. The company did note, however, that all planters would be affected by the Domestic Market Obligation (DMO) in Indonesia in 2022, as 16% of total volume has to be sold at a lower price of about RM2,700 per tonne,” they add.
BAL has committed a certain volume of its monthly CPO production under DMO to its largest buyer Wilmar International, Leow and Yow highlight. Based on the analysts’ channel check, the commitment from most upstream players to DMO worked out to be about 15% of their nucleus CPO production.
After taking into consideration the CPO produced from plasma and third-party fresh fruit bunches (FFB) which is about 50% of total FFB processed, the committed volume under DMO will dilute for BAL to only about 6% to 7%, they add.
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BAL’s management has guided for a 5%-10% y-o-y nucleus FFB production growth with the production pattern starting to normalise. The company has also guided for a ratio of 48:52 for 1H:2H FFB production for 2022, say the UOB KH analysts.
“We expect CPO production to grow by 17% y-o-y as we expect BAL to increase its third-party FFB purchases in view of Indonesia’s total FFB output increasing in 2022, which may result in higher mill utilisation rate.”
For FY21, BAL recorded unit cost of INR4,500 per kg, up 3% y-o-y. It has applied approximately 90% of its fertiliser requirements for FY21. For FY22, the company expects costs to rise by 20%-25% y-o-y, given the higher fertiliser prices of 60%-80% y-o-y.
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Taking this as well as the higher CPO prices (RM4,300 per tonne for FY22 and RM3,600 for FY23) into account, RHB analysts raise their FY21-FY23 earnings forecast by 14%-34%.
UOB KH has also revised its net profit forecasts by about 35% for FY22 factoring in higher CPO price assumption of RM4,200 per tonne. Its net profit forecasts for FY22-FY24 are at INR2.3 trillion, INR1.8 trillion and INR1.97 trillion respectively.
As at 10.07am, shares in BAL are trading 0.5 cents higher or 0.65% up at 76.5 cents.
