Bumitama Agri's ESG goals keep it at 'buy'

Maybank Kim Eng is keeping its "buy" call on Bumitama Agri with an unchanged target price of 65 cents, as the group can pride itself as a sustainability champion.

Bumitama Agri has pledged to make its operations carbon neutral by 2030 and has also initiated many community projects to help improve the income and livelihoods of surrounding communities.

"Overall, its ESG credentials appear to be relatively good but its wide geographical land concession of 234,000 ha with over 30,000 workers exposes Bumitama Agri to multiple ESG risks," says analyst Ong Chee Ting. 

So far, 56,433 ha or 43% of Bumitama Agri's total certifiable area is Roundtable on Sustainable Palm Oil (RSPO) certified, while in FY2020, its annual production of RSPO Certified Sustainable Palm Oil (CSPO) was 236,962 tonnes. 

Due to pandemic-related travel restrictions, the group has deferred its time-bound plan to complete certification of all its mills by 2022 (previously 2020) or one year after obtaining land use rights permits (HGU), and for all plasma smallholders by 2024.

Meanwhile, about 39,310 ha or 17% of Bumitama Agri's landback will be set aside as conservation areas. This comes on the back of the group adopting a Sustainability policy of No Deforestation, No Peat, No Exploitation in 2015. It has resolved all past land disputes, deforestation and forest fire allegations amicably. And it targets a 30% reduction in greenhouse gas (GHG) intensity by 2030 using 2016 as baseline.

Nonetheless, there is still an ongoing land dispute via RSPO complaints system pending resolution which relates to a 2012 case that was reopened in 2017 (after being closed in 2015).

Additionally, Bumitama Agri has the welfare of its rural community in focus. 

Poverty and lack of awareness among rural community are common reasons in Indonesia for incidences of illegal deforestation and fires in the past. Cognisant of these, the group has initiated many community projects aimed to reduce deforestation and minimise any fire use for community land clearing (as allowed by provincial regulations). Its corporate social responsibility (CSR) expenditure has averaged 2.3% of past three year’s profits.

"Despite its environmental conservation and community development efforts, Bumitama Agri remains one of the lowest cost producers in the region," says Ong. 

As at 3.05pm, shares in Bumitama Agri are trading at 46 cents or 0.9 times FY2021 book with a dividend yield of 4.6%.

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