BROKERAGES are turning more bullish on Bumitama Agri : P8Z 0%, with the Indonesian palm oil producer having exceeded expectations to report a 33 per cent year-on-year rise in its third quarter net profit.

RHB Research on Wednesday (Nov 15) upgraded its call on the stock to “buy” from “neutral”, as it believes the valuations are now “cheap”. 

Its higher price target of S$0.70, up from S$0.61 previously, remains pegged to an eight-times price-to-earnings ratio, based on the broker’s FY2024 estimates.

Valuations therefore look attractive against the six-times ratio, at which the stock is currently trading, said RHB’s research team, as it is now at the low end of its per-range of six to 12 times.

This is also considering Bumitama’s “handsome” FY2024 dividend yield of 6.8 per cent, which presents an added advantage for investors, in their view.

RHB has raised its FY2023 earnings estimates for the group by about 30 per cent to account for higher external fresh fruit bunches (FFB) output, higher crude palm oil (CPO) sales volumes and lower cost assumptions.

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The research house further lifted its FY2024 net profit forecasts by 12 per cent, and by another 14 per cent for FY2025.

UOB Kay Hian (UOBKH) and Maybank Securities, who both rate the group at “buy”, have also raised their target prices.

The two brokerages are expecting Bumitama to report lower Q4 results than in Q3 because, in their view, production peaked in Q3. 

UOBKH raised its price target to S$0.70 from S$0.65 after similarly adjusting its estimates for higher external FFB production.

It expects the group to continue increasing its third-party purchases in conjunction with a higher mill utilisation rate.

Its analysts said: “Higher third-party FFB contributions are expected to accommodate Bumitama’s upcoming new mills. There are two new mills coming up, with one commencing in November 2023 and another in 2024.”

Maybank’s higher price target of S$0.94, up from S$0.89 earlier, continues to value Bumitama at an eight-times ratio based on FY2023 estimates. The research house highlighted this ratio as 0.5 standard deviation point below the stock’s five-year mean.

Its analyst Ong Chee Ting said Bumitama’s key attraction lies in its high forward dividend yields of over 7 per cent.

Her earnings-per-share estimates for the group in FY2023 were raised by 7.5 per cent, and by 4.3 per cent in FY2024 to incorporate marginally lower unit costs and higher CPO average selling prices.

Contrary to RHB and UOBKH’s expectations of higher external FFB output, Ong has cut her full-year FFB output forecasts for the year by 3 per cent to reflect a flattish year-on-year growth.

Shares of Bumitama were trading S$0.02 or 3.3 per cent higher at S$0.625 as at 3.45pm on Wednesday.