Ada Lim of OCBC Investment Research has maintained her "hold" call on Bumitama Agri but with a higher fair value of 91.5 cents, up from 81.5 cents, given how the Indonesian palm oil company is seen to receive a boost from higher prices
In her Dec 5 note, Lim points out that benchmark crude palm oil prices in Malaysia has seen a recent jump no thanks to heavy rains and flash floods in parts of Southeast Asia.
As a result, harvesting and production will be hampered in Indonesia and Malaysia, two of the world’s largest producers of this cash crop.
In Indonesia, key palm oil areas in Sumatra and Kalimantan have recorded surplus rainfall. Landslides and power outages have also impacted related infrastructure and logistics, raising concerns over supply, says Lim.
On the other hand, demand might see a temporary cut given how the Diwali festive season has wound down.
However, this is likely to pick up again and remain supported through 2025 on the implementation of Indonesia’s B40 biodiesel program. An earlier Lunar New Year this coming 2025 might sustain higher consumption too to January, says Lim.
See also: RHB stays ‘neutral’ on telco sector amid fierce SIM-only competition
"All things considered, crude palm oil prices are expected to remain elevated, at least in the near term," the analyst adds.
For Lim, Bumitama Agri is increasingly being seen by the market as a dividend yield play, with Refinitiv consensus expecting it to offer a 12-month forward dividend yield of 6.4%.
Lim has raised her earnings multiple valuation to 8.1x, and has also taken into account potential growth in sales, leading to her revised fair value of 91.5 cents.
See also: DBS upgrades PropNex and APAC Realty to ‘buy’ amid strong pipeline of new launches in 2025
"We reiterate our 'hold' rating on valuation grounds but continue to like the stock from a total returns perspective," she adds.
Bumitama Agri shares changed hands at 90 cents as at 2.58 pm, down 0.56% for the day but up 46.72% year to date.
