Bumitama Agri - Double Digit Growth Projected In FY17
- Bumitama’s FFB output recovered nicely in 4Q16, rising 41% QoQ from 3Q, bringing its 2016 FFB output to a moderate decline of just 4% YoY.
- We have adjusted our forecasts upwards to take into account the better FFB output recovery and higher PK prices while updating for our latest in- house USD/IDR assumptions.
- Maintain our NEUTRAL recommendation, with a higher SGD0.85 TP (from SGD0.75, 6% upside), which implies a EV/ha of USD10,000/ha.
- We believe the company would continue to trade at the lower-end of its peer valuations due to its relative illiquidity and young age profile.
Strong recovery in FFB output in 4Q16.
- Bumitama Agri’s (Bumitama) FFB production showed a marked recovery in 4Q16, rising 41% QoQ from 3Q. This has led to the decline in its FY16 FFB output moderating to only -4% (from - 11% in 9M16). This is higher than management’s guidance of a 5-10% YoY decline and our original projections of -13% YoY for FY16.
- This, together with the higher CPO prices in 4Q16 should see its results, announced this month, surprising on the upside. We are therefore revising our FFB growth forecasts accordingly for FY16.
FFB growth to return to normal from FY17.
- Going forward, we expect Bumitama’s FFB growth to return to its usual double digit growth trajectory from FY17. This is as its trees fully recover from the El Nino impact.
- Given the young age profile of its plantations, (average eight years), we believe this double-digit growth would continue for the next few years. For FY17-18, we expect FFB to grow by 15-20% pa.
- We raise our earnings for FY16-17 by 16-17% to take into account:
- The higher FFB output for FY16;
- Higher PK prices (+24% for FY16/17) on the back of the current supply crunch for lauric oils;
- The change in our in-house USD/IDR assumptions to 13,700 (from 13,300) for FY17/18.
- Post-earnings revision, we raise our TP to SGD0.85, which implies 2017F P/E of 13x and EV/ha of USD10,000. This is at the low-end of its peers, which trade at the USD10,000-15,000/ha range. It is justified, given Bumitama’s relatively younger estates.
- In addition, its relative illiquidity remains a concern for investors, resulting in the discounted valuation vs its peers. No change to our NEUTRAL recommendation.
- Key risks to our call include the weather, as well as global supply and demand dynamics of edible oils.