SINGAPORE (Feb 28): Maybank Kim Eng and RHB Research are maintaining their “buy” and “neutral” ratings on Bumitama Agri with higher target prices of 97 cents and 67 cents, respectively.

This comes after the oil palm plantation company concluded FY18 with earnings of $125 million, down 9% y-o-y as its 4Q and full-year performance was impacted by weaker agriculture commodity prices, especially in the latest quarter.

In a Monday report, Maybank analyst Ong Chee Ting says she continues to like the stock for its low cost of production at IDR3,431/per crude palm oil (CPO) kg, which makes it one of the lowest cost producers in the region.

The analyst is forecasting 14% earnings per share (EPS) growth for FY19, underpinned by higher output and better prices.

FY19 and FY20 PATMI forecasts have also been raised to 5% and 3%, respectively.

“Bumitama Agri guides for up to 15% y-o-y fresh fruit bunches (FFB) output growth for 2019, which led us to raise our FY19-20 output estimates by +6%/+4% to conservatively reflect a +9%/+4% y-o-y nucleus output growth. Growth is driven by its young tree profile of 9.8 years average, and ~5% of new area coming into maturity,” says Ong.

Likewise, RHB has tweaked its forecasts up slightly by 5-9% for FY19-20 post the group’s FY18 results, and as the research houses introduces its FY21 forecasts.

At current valuations, the research house deems Bumitama Agri in line with peers and within the historical average P/E band of 10-13 times – implying an equity value per hectare (EV/ha) of US$11,000, which is at the low end of peers’ US$10,000 to $15,000/ha range.

Commenting on the latest set of results, the research house highlights that Bumitama Agri’s full-year fresh fruit bunches (FFB) output growth grew 27% on-year, above its forecasted 21% although still in line with management’s 2018 growth guidance of 25-30%.

“Crude palm oil (CPO) prices will remain the key catalyst for this pure upstream player, although Bumitama Agri is somewhat better off than its peers, given its strong double-digit FFB growth,” says RHB.

As at 11:26am, Bumitama Agri is trading 1 cent higher at 68 cents or 1.42 times FY19E book value according to Maybank estimates.