OCBC Investment Research has initiated coverage on Bumitama Agri : P8Z 0% with a “buy” call and a fair value estimate of S$0.67.

It said the counter is a good entry point for long-term investors looking to acquire a higher-than-average dividend yield, as the palm oil producer’s current valuations are undemanding on a forward price-to-earnings basis.

The initiation comes as the group’s key performance metrics see quarter-on-quarter improvement. Net profit for the second quarter ended Jun 30, 2023, was 77 per cent higher at 759.8 billion rupiah (S$67.3 million), while revenue rose by 9 per cent to 3.9 trillion rupiah.

The research team also highlighted Bumitama Agri’s “superior productivity, high-quality plantations and continued focus on intensification rather than expansion”.

This puts the group in a good position to maintain above-industry-average yields and capture greater market share, OCBC added.

Despite the present softness in crude palm oil (CPO) prices, the palm oil industry’s long-term fundamentals remain intact, the research team said.

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This comes amid expectations that global CPO production will enter an “era of deceleration”, unsupported by a slowdown in expansion for pail oil plantations, ageing plantations and unfavourable weather conditions.

Demand is also projected to shift towards domestic consumption as biodiesel mandates continue to gain traction.

“Given the strategic importance of the palm oil industry to the Indonesian economy, government regulations have thus far been supportive, and we also note the greater emphasis on sustainability over the years,” OCBC Investment Research said.

Therefore, it is optimistic about the growth profile of Bumitama Agri, an upstream player, moving forward.

Bumitama Agri’s shares were trading flat at S$0.56 as at the midday trading break.