SINGAPORE (Nov 13): Maybank Kim Eng, DBS Vickers Securities, RHB Research and UOB Kay Hian are maintaining their “buy” calls on Bumitama Agri with the respective price targets of 98 cents, 85 cents, 81 cents and 80 cents.

All four brokerages continue to like the stock for its positive near- to medium-term earnings outlook with the view that it is undervalued.

This comes post the release of the group’s 3Q18 financial results, which saw a 1.4% y-o-y increase in earnings to IDR270 billion ($25.3 million) over the quarter, underpinned by a delay in fertilising application and lower taxes despite its lower revenue.

In a Monday report, Maybank analyst Ong Chee Ting says he continues to like Bumitama for its medium-term growth story; anticipated 9% CAGR in its FY17-20F fresh fruit bunches (FFB) output; as well as its relatively low cost of production.

As such, he keeps his earnings forecasts for now pending a review of industry-wide crude palm oil (CPO) price forecasts, with Maybank’s target price of 98 cents translating to 14 times FY18 PER, its five-year historical mean.

Beyond CPO prices, DBS analyst William Simadiputra thinks the group’s volume expansion will continue to underpin its earnings growth going forward.

He forecasts the group to increase its third-party FFB purchases to achieve a milling capacity expansion rate of 68%, and therefore revises FY18F earnings up by 20% in anticipation of better profitability in 4Q.

“Higher milling capacity outlook is positive for Bumitama’s profitability… Moreover, we believe the aggressive expansion in FY05-13 has kept Bumitama’s tree-age profile younger relative to peers, with positive FFB output of 9% CAGR (including smallholder estates) between FY17 and FY20F,” says Simadiputra.

While the group’s 3Q results came in slightly below UOB’s expectations due to the lower average selling price (ASP) and sales volume, analyst Leow Huey Chuen believes 4Q18 CPO production should remain strong for the group, although it is unlikely to translate into higher sales.

Leow has cut net profit forecasts for FY18-20F by 20%, 15.5% and 5.8%, respectively, to adjust for reduced sales volume forecasts due to the ongoing vessel shortage – as well as lower Kalimantan ASP at a wider discount to Sumatra prices due to high supply, shortage of storage capacity and shortage of vessels to take deliveries.

“For 2019, we should see a higher sales volume growth as we expect inventory drawdown to start by late-1Q19. The pressure from the shortage of vessels should improve with the government reducing the biodiesel delivery points from over 100 to just 10-13 blending stations, and leveraging on Pertamina’s existing delivery network for distribution to more stations,” says the analyst.

Meanwhile, RHB continues to like Bumitama for its inexpensive valuations and still-decent five-year earnings CAGR of 14%, supported by strong double-digit FFB growth of 15-20% per annum.

No changes have been made to the research house’s forecasts for FY18-20F, and its target price of 80 cents  is based on an unchanged target FY19 P/E of 11 times, which implies EV/ha of US$10,000 – the low end of its peers’ US$10,000-15,000/ha range.

“Valuations remain undemanding at 2019F P/E of 8-9 times vs the historical average of 11-12 times. Key risks include weather, and supply & demand dynamics of edible oils,” says RHB.

Shares in Bumitama Agri last traded flat at 61 cents prior to the midday trading break.