SINGAPORE (Aug 8): RHB is maintaining its “neutral” rating on Indonesian oil-palm plantation Bumitama Agri, with a revised target price of 75 cents.

In a Monday report, the research house expects negative growth of 13.1% for the plantation, before recording an increase of 17-20% in FY17-18.

This comes as the plantation lowered its 2016 FFB output forecasts to –5 to –10%. While it expects a significant recovery in 2H16, Bumitama Agri is cautious on prospects in 2017, citing the secondary effect of El Nino.

To recap, Bumitama Agri announced 1H16 results that were in line with RHB’s expectations. The research house noted that the company’s FFB production fell 17.3% y-o-y in 1H16, while planted area increased by 2,544ha to 7,190ha in 1H16.

The research house says that Bumitama’s biodiesel capacity expansion to 60,000 tonnes pa is on track to be completed within the next six months. In 1H16, it delivered about 14,786 tonnes of biodiesel to state-owned oil and gas company Pertamina and managed to achieve gross profit margins of about 11% in same period.

“We assume a strong recovery in 2017, barring any unforeseen weather conditions,” says RHB.  

However, key risks include the reversal of CPO price trends as well as weaker-than-expected demand.

RHB says that it prefers Golden Agri for exposure to an SGX-listed plantation stock. It has a “buy” for the stock, with a target price of 42 cents.

As at 11.15am, Bumitama Agri was up 1.5% at 69.5 cents