Bumitama Agri - DBS Research 2023-07-11: Recovering Earnings Outlook Amid The El Nino Threats

• We think Bumitama Agri (SGX:P8Z) is a well-run palm oil company since it has consistently delivered strong CPO yield, profitability, and ROE performance even during the palm oil price downcycle, thanks to its good estate management.
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• Following the improving earnings trend in 2024, we believe Bumitama Agri's share price can perform even better going forward, coupled with current undemanding valuation at FY24F P/E of 5.4x, which is 30%- 40% discount vs its older plantation companies’ peers.
• Beyond 2024, given its prime age palm oil trees production cycle that will keep the overall cash cost low and CPO yield per hectare high, this should thus sustain Bumitama Agri's strong financial and return on equity performance.

Global palm oil price recovery in 2H23 and 2024

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• Meanwhile we believe the palm oil price downside risk from current level is limited on improving crude oil price trend, as well as recovering demand from China.
• Looking at longer term horizon, we estimate Bumitama Agri could generate steady annual dividend at least S$0.02/share in the long run, assuming a CPO price benchmark of at least at US$900 per MT (Rp10,100/kg for domestic selling price).
• We think Indonesia’s CPO price benchmark can sustain around Rp10,000/kg (US$689 per MT) ahead, driven by Indonesia biodiesel consumption that will help to offset any weakness from overseas CPO demand. We believe our selling price assumption is conservative since it is at discount to our palm oil benchmark price assumption of US$976 per MT (Rp14,600/kg) since Bumitama Agri exposes to Indonesia domestic CPO prices, which the pricing mechanism is net of export levies and taxes.

Earnings revision summary

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William Simadiputra DBS Group Research | https://www.dbs.com/insightsdirect/ 2023-07-11 SGinvestors.io

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