SINGAPORE (Aug 15): Maybank Kim Eng and RHB are sticking to their “buy” calls on Bumitama Agri which operates oil palm plantations and mills in Indonesia.

Maybank likes Bumitama Agri as least for the medium term, anticipating a 13% CAGR in its 2016-19 FFB (fresh fruit bunches) output. This is underpinned by its young tree profile of 8.7 years average.

RHB expects Bumitama Agri to register double-digit FFB growth profile over the next few years to offset the lower CPO price environment.

In 2Q17, Bumitama recorded strong FFB output growth of 54.9% y-o-y on the back of some 8,800ha of land that came into maturity in 1H17. According to Maybank, this FFB growth is much higher than management’s guidance of 15% growth and its forecast 17.4% growth.

RHB estimates unit costs have decreased by 7-8% y-o-y in 1H17 and by more than 20% q-o-q from 1Q17. This is in line with management’s previous guidance, where it applied the bulk of its fertiliser allocation in 1Q. For FY17, management previously projected a 5% rise in unit costs y-o-y.

Bumitama saw an increase in CPO output of 41% y-o-y but sales volumes of CPO only rose by 19% y-o-y. This could be due to some inventory build-up during the quarter.

However, Maybank says Bumitama’s 2Q17 exceptional FFB output growth was exceptional but unlikely to be sustainable in 2H17. “We consider it probable that Bumitama’s 2017 crop pattern may mirror that of 2014 whereby 3Q output could be lower q-o-q before it peaks for the year in the final quarter,” says analyst Ong Chee Ting in a Tuesday report.

“We believe valuations remain undemanding at current prices, with P/E’s averaging around 10x for FY17F and FY18F, versus its historical averages of 11-12x. No change to our BUY recommendation,” says RHB.

At 12.48pm, shares in Bumitama are up 2 cents at 72 cents.

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