SINGAPORE (Dec 9): The dry weather in 3Q19 may have squeezed the earnings of Singapore-listed Bumitama Agri in recent times.

But the Indonesia-based plantation company is expected to do better in FY20 and FY21 as the output in fresh fruit bunches (FFB) recovers.

RHB Group Research notes that the management has adjusted its guidance to a 45:55 ratio for FFB output between 1H and 2H, compared to 43:57 previously.

As such, the brokerage has forecast FFB growth of 10% to 15% in FY20 and FY21, as 9,884.2 acres of palm oil trees come into maturity. This compares to its projection of flat FFB growth in FY19.

“We understand the weather at its estates in Kalimantan has now normalised, after being dry for the bulk of 3Q19,” RHB’s Singapore Research team writes in a note dated Dec 9. “We believe earnings have turned the corner, with FFB output recovery being seen at its estates.”

Given the uptrend in crude palm oil (CPO) prices, this should bode well for Bumitama Agri.

For every increase of RM100 ($32.70) per tonne in CPO prices, the company’s earnings will rise 8% to 10%, RHB says.

“We expect the bulk of its earnings growth, at 61% y-o-y for FY20F, to come from our higher CPO price projection of IDR8,371 ($0.81) per kg for that year, as well as higher FFB growth,” says the brokerage.

RHB has raised its target price earnings multiple for the stock to 18 times FY20 earnings from 16 times previously.

This is in line with its mid-cap plantation peers and Singapore-listed peers, it says.

RHB also raised its target price for the stock to 80 cents from 69 cents previously and kept its “buy” rating.

As at 3.43 pm, shares of Bumitama traded down one cent or 1.4% at 72 cents.