Bumitama Share Price


Bumitama (SGX: P8Z) share price is at an all-time low of about $0.605 per share again since its IPO in 2012. Is this an opportunity to get into this palm oil agricultural play, touted to be the most profitable amongst its peers?

bumitama share price

About Palm Oil Industry

For those of you who may not know too much about the palm oil supply chain, a good way to understand is this flow chart:

palm oil flow chart

The whole supply chain starts from the plantation owners planting and harvesting the fruits called the Fresh Fruit Bunch (FFB), and normally the fruits are harvested twice a month.  There are usually collection centres collecting the FFB from the smaller plantation owners and then sending to the mills. At the mills, the FFB is processed and crude palm oil (CPO) and palm kernel (PK) extracted to be sent to the refineries. From there, there are actually many uses of CPO and PK, ranging from biodiesel, cooking oil, biscuits, soaps to chocolates.

Bumitama Agri Ltd has plantations in Indonesia and has a number of mills processing the FFB into CPO and PK.

Bumitama FFB and CPO Production

bumitama share pricebumitama share price

You can see that Bumitama has been increasing their FFB and CPO outputs with CAGR of 13.6% and 13.9% from 2014 to 2018.

Unfortunately, when translated into top line, the growth in revenue in IDR dollar terms is less impressive. When converted to SGD, there was actually a slight decline in revenue in FY 2018 compared to FY 2017.

 

bumitama share price

Bumitama Financials

The eps of Bumitama in SGD terms since IPO just isn’t going anywhere. This has resulted in not so sterling share price performance.

bumitama share price

There are a few types of businesses categorized as follows:

  1. High Growth, with growth > 20%
  2. Stalwarts, with growth > 10% < 20%
  3. Slow Growth, with growth < 10%
  4. Cyclicals
  5. Turnarounds
  6. Asset Plays

Bumitama is probably best described as a cyclical company, highly dependent on CPO commodity prices. CPO prices dropped to three-year lows in November and December 2018 and this is certainly not good for Bumitama and its bigger peers like First Resources and Golden Agri Resources. Let’s take a look at the CPO price trend. Prices have picked up slightly in recent months but still very depressed. There is forecast that second half of 2019 hopefully will augur well for the palm oil industry with further price recovery and higher demand.

CPO price trends

Let’s continue exploring aspects of Bumitama’s financial performance.

Profitability

With all the challenges, 2018 FCF/revenue is good at 10%, net margin is decent at 13%, ROE is 14% while ROA is 6.63%. I won’t fault this set of numbers.

Debt

Debt to equity is slightly high at 0.672 while interest coverage is probably alright at 8.7 times. I would have hoped for better numbers but I don’t think there is a huge concern about its debt level.

Share Buybacks

share buyback

Bumitama is involved in buying back shares though the amount is very small. It is interesting to note that the share buyback was at an average price of $0.674 which may mean that at that price, the management feels it is undervalued.

Bumitama’s Major Shareholders

You should also note that the CEO and his family owns 43.11% of the company through Wellpoint Pacific Holdings while IOI, a major Palm Oil player in Malaysia, effectively owns 30.79% through Oakbridge Investments. I am comfortable with this as IOI will play a check and balance sitting on the board while the CEO’s family would not do anything untoward that will adversely affect the share price of this company.

Final Conclusions

I typically do not invest in a cyclical business as you need to really know the industry fairly well. In this instance, I do have some knowledge of the industry and I would say that the palm oil industry would probably last for a few more decades at least. There are challenges from environmental lobbyists against the use of palm oil versus other vegetable oils, the costs involved to go for sustainable palm oil certifications, the political pressures from certain countries as well as fluctuations in CPO prices purely from a supply and demand perspective. It does not help that trade tensions seem to have caused a global economic slowdown. China is a major consumer of palm oil and a slowdown there will definitely impact the whole industry.

Regardless of the headwinds, what’s my valuation of Bumitama? It is difficult to carry out a valuation of a cyclical business. I made some assumptions and using discounted cash flow method, I value it at between $0.50 to $0.60 at current CPO prices, while there should be some upside as conditions improve.

At $0.60 share price, the current dividend yield is 4.5% while the dividend payout ratio is just slightly above 50%. I believe the downside should be quite limited. However, I do feel that Q2 2019 results will still come in ugly, and I might want to observe further before I come to an investment decision. Alternatively, I might just invest an initial amount first.

Journeywithmoney is conducting two upcoming Stock Investment Coaching Classes and we will share the 5-Step Stock Investment framework so you can profit successfully from the stock market. We are giving limited tickets worth $25 each FOC, so please Register below now with the promo code JWMfree. After the free tickets are exhausted, you can still get limited tickets at discounted rates of $15 each with promo code JWM10. Hurry and get your tickets.

 


At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.

Do leave us comments and feedback below so we can improve on our contents.

Please also follow us on our Facebook Page.

Our Previous Article How To Earn Passive Income In Singapore.

Leave a comment

Your email address will not be published. Required fields are marked *