SINGAPORE (May 8): RHB Securities is keeping Bumitama Agri at “buy” with a target price of 85 cents, saying it is an undervalued company with good growth prospects.
“Bumitama is currently trading below its historical average 12 times earnings, while its implied EV/ha of US$7,400/ha ($9,893/ha) is below replacement values of US$8,000-10,000/ha,” says RHB.
RHB says although Bumitama Agri’s 1Q18 core net profit is 18-20% of its and consensus 2018 forecasts, this is in line with full-year expectations as earnings are expected to pick up in 2H.
Bumitama Agri reports 16.8% lower 1Q earnings of $21.7 mil
1Q18 FFB output grew 20% y-o-y, on the back of 2,539ha of land which came into maturity. This growth is in line with management’s growth guidance of 15-20% and slightly above RHB’s 16% projection for FY18.
For 2018, Bumitama is keeping FFB (fresh fruit bunches) growth target at the same rate. While it expects FFB growth to taper from 2H18 onwards, it continues to expect seasonality of FFB output and earnings to be skewed towards 2H18. It maintains its 1H18 and 2H18 output projections at 44% and 56% respectively.
Bumitama’s 1Q18 unit cost of IDR4,487/kg (43 cents/kg) was 16% lower y-o-y albeit 6% higher than 2017’s IDR4,239/kg. The y-o-y decline in unit cost was due to lower fertiliser being applied during the quarter and higher FFB yield.
For 2018, Bumitama’s management continues to project a 5-10% y-o-y rise in unit costs on the back of higher volumes of fertiliser applied and higher fertiliser prices. Bumitama is also on track to hit its yearly new planting target of 3,000ha at a cost to maturity of US$8,000/ha.
Meanwhile, management is still in talks and seeking offers to sell its biodiesel plant land and equipment to recoup the remaining investment cost of IDR130 billion for its biodiesel plant.
As at 4.04pm, shares in Bumitama are trading at 67 cents.
