Bumitama Agri (BAL SP) - Beats estimates
Expect strong output growth to resume post El Nino
- 2016 core results beat estimates. For 2017, BAL’s young trees will drive strong output growth trajectory (+22% YoY).
- At 11.5x FY17 PER and +24% EPS growth for 2017, BAL remains a BUY with a marginally revised TP of SGD0.96 (from SGD0.97) on unchanged 14x FY17 PER (-1SD of 4-year historical mean to reflect the recent slowdown in nucleus plantings).
4Q16 surprised positively on ASP and cost
- Strong 2016 headline PATMI of IDR1,005b (+41% YoY) was lifted by FV gain on biological assets (IDR27b), net FX translation gains (IDR16b), and deferred tax income (IDR55b) in relation to Indonesia’s revaluation of assets exercise. Without these, 2016 core PATMI of IDR919m (+12% YoY) met 134%/107% of our/consensus forecasts.
- The better-than-expected 4Q16 was on lower-than-expected cost which offset substantial lock-in of forward sales in 2H16 delivered at prices at least 10% below spot prices.
All-in cost of production at IDR3,030/kg (-15% YoY)
- Operationally, 2016 FFB yield fell 18% YoY to 14.6t/ha due to the lagged effect of the strong El Nino in 2015. But FFB nucleus output only fell 4% YoY to 1,513,422 MT as more areas came into maturity. The lower output was offset by higher CPO ASP achieved at IDR7,378/kg (+6% YoY).
- The key surprise was the lower-than-expected 2016 all-in cost of production which we estimate at IDR3,030/kg (-15% YoY) despite the lower yields.
+22% FFB output to drive +24% EPS growth in 2017
- We consider BAL’s 2017 FFB growth guidance of +15% YoY to be low considering
- expectation of a post El Nino rebound, and
- its young tree profile of 8.7 years average and +11% of new nucleus area coming into maturity in 2017.
- Following the results, we have tweaked our financial parameters which led to -1%/-5% change in our 2017-18 PATMI forecasts and we also introduce our 2019 forecast.
- BUY for its strong growth.