SINGAPORE (Oct 26): UOB Kay Hian is maintaining its “buy” on Bumitama Agri with a target price of $1.25 on expectations of a strong pickup in production in 4Q despite a forecast 4.4% fall in FFB (Fresh palm Fruit Bunches) for 2016 from a year ago.
In a Tuesday note, although nucleus FFB production for 9M16 dropped 10.7% y-o-y, UOB expects nucleus FFB production growth to fall a less steep 4.4% y-o-y as it expects a stronger recovery in 4Q on the back of new mature areas as well as its young oil palm trees approaching prime age. Production is also expected to peak in 4Q, accounting for 28-33% of full-year FFB production.
As for CPO prices, UOB expects them to hover at RM2,400-2,600/tonne ($803-870/tonne) and is maintaining its average CPO price forecast of RM2,500/tonne for 2016. That’s due to the tight supply since 1H16 and strong exports from China and India in Aug 16, which has helped CPO prices recover swiftly. Meanwhile, demand from key importing countries such as China and India is expected to hold steady too.
