Bumitama Agri (BAL SP) - UOB Kay Hian 2017-01-23: 4Q16 FFB Production Improves qoq And yoy

Bumitama Agri (BAL SP) - UOB Kay Hian 2017-01-23: 4Q16 FFB Production Improves qoq And yoy BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - 4Q16 FFB Production Improves qoq And yoy

  • Bumitama Agri (BAL) achieved strong FFB production in 4Q16. It registered a smaller full-year production decline of only 4.1% vs peers and this is in line with our expectation.
  • 4Q16 nucleus FFB production improved 42% qoq and 11% yoy. We expect BAL to report better qoq and yoy earnings for 4Q16 on higher FFB production and better CPO prices. 
  • We maintain our 2017 FFB production growth forecast of 15.6% yoy for now, pending management guidance. 
  • Maintain BUY. Target price: S$1.25.



WHAT’S NEW


4Q16 FFB production increased qoq and yoy. 

  • Bumitama Agri’s (BAL) nucleus fresh fruit bunch (FFB) production jumped 41.4% qoq as it was supported by a recovery in FFB yield (+43.2% qoq) with the company having entered the peak production period. Nucleus FFB production increased 10.0% yoy, supported by a recovery in FFB yield and new mature areas. For 2016, nucleus FFB production decreased 4.1% yoy - which is within our expectation.

4Q16 earnings likely to be better qoq and yoy. 

  • We forecast 4Q16 net profit of Rp330b- 360b (3Q16: Rp181b, 4Q15: Rp327b). We expect stronger qoq and yoy earnings for 4Q16 on improved FFB production and higher CPO prices. 
  • BAL is targeting to announce its 4Q16 results on 23 Feb 17.


STOCK IMPACT


Lower external crop intake. 

  • FFB purchases (in terms of volume) from external parties improved qoq in 4Q16 with there being ample crop supply during the peak production period. 
  • For 2016, FFB purchases from external parties dropped 6.1% yoy as BAL saw lower external crop intake in 1H16 due to a lack of crop supply available in the market as a result of the lagged impact from the drought.

Higher CPO production qoq and yoy. 

  • In line with the increase in FFB production, total CPO production increased 47.4% qoq and 11.1% yoy in 4Q16. 
  • Meanwhile, oil extraction rate (OER) improved qoq and yoy to 22.5% in 4Q16. 
  • For 2016, CPO production dropped 5.6% yoy due to the lagged impact from the severe drought.

2016 FFB production growth in line with our expectation. 

  • For 2016, nucleus FFB production dropped 4.1% yoy and this is in line with our expectation. 4Q is the seasonal peak production quarter for BAL, and usually accounts for 36% of full-year FFB production. 
  • For 2017, we are maintaining our FFB production growth forecast of +15.6% yoy for now, pending management guidance. 
  • Meanwhile, we understand that central Kalimantan had been experiencing good rainfall in 2016. Thus, production recovery in central Kalimantan is expected to be stronger compared with that in Indonesia’s other regions in 2017. 
  • BAL’s producing estates are largely located in central Kalimantan.

Expect stronger CPO prices qoq and yoy. 

  • BAL’s 4Q16 average CPO price is likely to have grown marginally qoq and to be significantly higher yoy. The industry average for CPO spot prices in 4Q16 improved 5.1% qoq and surged yoy by 35.2%. The improvement in CPO prices was mainly due to tight supply and low inventory levels. 
  • For 2016, average CPO prices were up 14.5% yoy.


EARNINGS REVISION/RISK

  • Maintain earnings estimates. We forecast net profits of Rp921b, Rp1,443b and Rp1,477b for 2016-18 respectively.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$1.25, based on 15x 2017F PE. 
  • We like BAL for its young tree age profile, which spells strong production, as well as its hands-on estate management which has allowed BAL to consistently deliver a high OER.


SHARE PRICE CATALYST

  • Surge in CPO prices. BAL is highly leveraged to CPO prices. A surge in CPO prices will boost earnings. 
  • For every 10% increase in CPO prices from our base case, our EPS forecasts would increase 22%.




Ooi Mong Huey UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-23
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.250 Same 1.250



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