Bumitama Agri - FFB Growth Bouncing Back To Double Digits In 2017
- Bumitama’s FFB output is expected to bounce back into a strong double- digit growth on the back of rising mature areas as well as a low base effect 2016.
- FFB yields, however, are expected to remain at 15- 16tonnes/ha, given its still relatively young age profile of nine years.
- We tweak our earnings forecasts upwards slightly, raising TP to SGD0.88 (from SGD0.85, 10% upside). This implies 13x 2017F P/E and EV/ha of USD10,000/ha. This is at the low end of its peers, which trade at a USD10,000-20,000/ha range, due to its relatively young age profile and share illiquidity.
Double-digit FFB output in FY17.
- Bumitama Agri (Bumitama) saw a recovery in FFB output in 4Q16 of 10% YoY.
- For 2017, management is guiding for a 15% growth in FFB output.
- Although our forecast is higher at 17.4% YoY for FY17, we are maintaining our projections on the back of the 11,000ha of new nucleus areas coming into maturity in 2017 as well as the low base effect in 2016.
- Bumitama achieved a unit cost of IDR765/kg in 2016, in line with our forecasts. Management expects costs to rise 5% in FY17 on the back of higher wages and increased fertiliser application.
- Some fertiliser in 2016 was not applied due to adverse weather and this would be applied in 2017 instead.
- As for new planting, management is targeting 3,000ha in 2017 (from 2,688ha in 2016), while replanting targets have been set at 2,000ha for 2017.
Deferred tax income recognised.
- Bumitama recognised IDR54bn of deferred tax income in 4Q16 from the revaluation of its estates. As management is being conservative in its recognition of deferred tax income, they are not expecting to recognise a lot more in FY17.
- Key risks include the weather, as well as global supply and demand dynamics of edible oils. Bumitama is relatively sensitive to CPO price movements – every MYR100/tonne change affects net profit by 5-6% pa, based on our estimates.
- We tweak our FY17F-18F earnings upwards by 3-5% after updating for FY16 results and introducing FY19 forecasts.
- With that, we raise our TP to SGD0.88, which implies 13X 2017F P/E 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.