WITH the continued run-up in crude palm oil (CPO) prices, RHB Research has upgraded its call on palm oil producer Bumitama Agri to “buy” from “neutral” with a higher target price of S$0.95 from S$0.70 previously.
The new target price is based on 10 times price-to-earnings multiple based on FY2025 estimates, which RHB noted to imply an earnings value per hectare of US$10,000 versus its peers’ range of US$8,000 to US$15,000.
It incorporates a 14 to 28 per cent increase in earnings projections for FY2024 to FY2026 on the higher CPO price assumptions.
On Tuesday (Nov 12), RHB’s research team highlighted the group as a “pure planter with inexpensive valuations”.
In the team’s view, Bumitama’s valuations remain inexpensive even after its earnings upgrade, as it trades at about 7.8 times FY2025 estimates versus its peers’ range of 7 to 11 times.
Shares of Bumitama were down by S$0.01 or 1.2 per cent at S$0.83 as at 9.52 am on Tuesday.
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The stock call upgrade comes in tandem with RHB’s rating change for the plantation sector to “overweight” from “neutral”. It has also added Bumitama to its list of top picks in line with its strategy of focusing on purer planters.
This comes as the research house has raised CPO price assumptions for 2024 to 4,100 ringgit (S$1,239) per tonne, from 3,800 ringgit/tonne previously.
“We believe prices are unlikely to decline to (less than) 4,000 ringgit per tonne in the near future as geopolitical risks remain very much in play, which would also keep crude oil prices elevated and speculative forces active,” said analyst Hoe Lee Leng.
Noting how CPO prices have risen by about 15 per cent in the past month alone, the research house attributes the run-up to the recent spike in crude oil and soybean prices; the Thai government’s ban on palm oil exports till end-2024 affecting sentiment; and US president-elect Donald Trump’s win.
“In the 2016 election, when Trump won, soybean and palm oil prices rallied 17 per cent and 28 per cent a few months before the election. Post-election, prices rose further, by 10 per cent and 11 per cent to a peak of US$832 per tonne and 3,306 ringgit per tonne from end-2016 to early 2017,” said Hoe.
“With CPO prices crossing 5,000 ringgit per tonne amidst a blend of fundamental and speculative factors, we believe share prices have yet to catch up and are due for a rerating,” she added.
