Increase fair value estimate of Bumitama Agri (SGX:P8Z) to S$0.785, with Bloomberg consensus forward dividend yield of 6% as at 3 Apr 2024 screening attractive within the Singapore market.
Average CPO prices in Mar 2024 reached their highest since Apr 2023
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According to the Malaysian Palm Oil Board (MPOB), Malaysia’s CPO production fell by 10.2% month-on-month (MoM) to 1.3m tonnes in Feb 2024.
Similarly, palm oil inventory levels continued to trend downwards in Indonesia, sliding 14.8% y-o-y to 3.1m tonnes as at Dec 2023 based on data from the Indonesian Palm Oil Association (IPOA).
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Bumitama Agri is likely to shine in an environment where supply is constrained
According to the World Meteorological Organization (WMO), the 2023-2024 El Niño peaked last December as one of the five strongest on record. While it is gradually weakening, there is a 60% chance of El Niño persisting from Mar to May, and almost all land areas are expected to experience higher than normal temperatures.
There is also a chance of La Niña occurring in the second half of the year, though the odds are currently uncertain.
Thus far, we have yet to see a significant impact from El Niño on CPO yields, as total CPO production in Malaysia for the first two months of the year have been higher y-o-y.
Given the lagged impact of El Niño, and if CPO yields do come down later this year, Bumitama Agri is likely to benefit given:
its position as a pure upstream player; and
its track record of industry-leading productivity.
Increase Fair Value estimate to S$0.785
Read more at SGinvestors.io.
Above is an excerpt from a report by OCBC Investment Research. Clients of OCBC Securities may be the first to access the full PDF report @ https://www.iocbc.com/.
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