RHB Invest downgraded Bumitama Agri to Neutral from Buy after lowering its forecasts for crude palm oil (CPO) prices following an unexpected drop in prices.
It noted that CPO prices fell to a low of 1,717 ringgit a tonne on 21 November, after remaining relatively stable in a 2,000 ringgit to 2,200 ringgit a tonne range for four months. RHB attributed the drop to a continued increase in CPO stock levels in Malaysia and the decline in crude oil prices.
That spurred RHB to cut its 2019 CPO price forecast to 2,200 ringgit from 2,500 ringgit a tonne, and lower its 2020 CPO price forecast to 2,400 ringgit from 2,500 ringgit a tonne. It projected CPO would trade in a 1,800 ringgit to 2,400 ringgit range in 2019.
It also lowered its earnings forecasts for Bumitama Agri by 20-25 percent for fiscal 2019-20, and cut its target price for the stock to S$0.60 from S$0.80.
But it only downgraded the stock to Neutral, pointing to a likely limit to further downside.
“While CPO prices are likely to be relatively unexciting in 2019, downside risks are limited from hereon, as demand is picking up, while inventory should start moderating in the first quarter of 2019,” RHB said in a note on Monday. ” Post-earnings revision, valuations look fair.”
Bumitama Agri shares ended Tuesday down 0.79 percent at S$0.63.