Bumitama Agri
Price target: OCBC Investment Research ‘buy’ 78.5 cents
Well-supported prices
Ada Lim of OCBC Investment Research has kept her “buy” call on Bumitama Agri, along with a higher fair value of 78.5 cents, up from 74 cents, to reflect a smaller drop in palm oil prices than earlier estimated.
In her April 3 note, Lim observes that crude palm oil (CPO) prices had enjoyed a strong start to the year, with March prices hitting the highest since last April’s RM4,216 ($1,199) per tonne.
“Seasonally tight supply coincided with demand that was amplified by start-of-year festivities such as the Lunar New Year, Ramadan, and Eid,” says Lim.
The strong price support was caused by lower output. Citing the Malaysian Palm Oil Board (MPOB), Lim says Malaysia’s CPO production fell by 10.2% m-o-m to 1.3 million tonnes in February 2024.
Similarly, palm oil inventory levels continued to trend downwards in Indonesia, the other major producing country, with the Indonesian Palm Oil Association reporting a slide of 14.8% y-o-y to 3.1 million tonnes as at December 2023.
“CPO prices may continue to trade at elevated levels in the near term, with improving output levels for 2Q onwards posing downside price risk for the rest of the year,” she reasons.
For Lim, Bumitama is set to benefit from such trends given its position as a pure upstream player, coupled with its track record of leading the industry in its productivity.
Citing industry estimates for production and prices, Lim has derived a higher fair value of 78.5 cents for Bumitama, up from 74 cents, based on 6.3 times forward FY2025 earnings.
Bumitama on April 4 announced a final dividend of 3.63 cents for FY2023, which is a yield of more than 5%. According to Lim, the company is increasingly seen by investors as a yield play. “This is relatively attractive in the Singapore market,” she adds.