Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-08-15: Astounding 2Q Output Growth, Raising Growth Guidance

Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-08-15: Astounding 2Q Output Growth, Raising Growth Guidance BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - Astounding 2Q Output Growth, Raising Growth Guidance


Driven by post El Nino yield recovery 

  • Bumitama Agri (BAL) posted a remarkable 2Q17 FFB output growth of 90% YoY (+26% QoQ) albeit from a low base in 2Q16. 2Q17 results were above our and market expectations. We keep our earnings forecasts pending an update. 
  • BAL remains a BUY with an unchanged SGD0.96 TP on 14x FY17 PER, its 4- year mean. An interim DPS of 0.75 SG cents was announced.


2Q17 results lifted by higher output 

  • BAL reported a 2Q17 core PATMI of IDR285b (+158% YoY, +5% QoQ), bringing 1H17 core PATMI to IDR554b (+83% YoY), which met 49%/48% of our/consensus full-year estimates. 
  • 2Q17’s YoY earnings jump was underpinned by higher revenue (+39% YoY, -8% QoQ), which was in turn boosted by FFB output growth (+90% YoY, +26% QoQ) post El Nino impact, and slightly higher CPO ASP achieved of IDR8,057/kg (+4% YoY, -5% QoQ).
  • We noticed that its inventory figures (as at 30 June 2017) rose to IDR518b (+38% YoY, +23% QoQ) which signifies build-up in inventory that could further boost sales and profits in 2H17.


Bountiful harvest in 2017 a reality 

  • 2Q17’s FFB output growth was exceptional but unlikely to be sustainable in 2H17. 
  • Its 1H17 output (+55% YoY) met 48% of our full-year forecast, higher than its historical 1H:2H 44:56 ratio. However, we consider it probable that BAL’s 2017 crop pattern may mirror that of 2014 whereby 3Q output could be lower QoQ before its peaks for the year in the final quarter.


BUY for its medium term growth 

  • We continue to like BAL for its medium term growth story, anticipating a 13% CAGR in its 2016-19 FFB output. This is underpinned by its young tree profile of 8.7 years average. 
  • The stock is trading at an attractive 10.5x FY17 PER as current valuation ignores its growth potential.


Stock remains under-appreciated; BUY 

  • BAL’s revised FFB growth guidance of +25% YoY (previously +15%) for 2017 appears fair, and has potential for some upside surprise still. With 73% of fertilising work expensed in 1H17 and higher brought forward inventory, 2H17 earnings could be stronger HoH despite weaker CPO ASP. 
  • We maintain our earnings forecasts and BUY call with an unchanged SGD0.96 TP on 14x FY17 PER, its 4-year mean.


Group growth guidance raised to 25% (from 15%) 

  • BAL hosted a post 2Q results tele-conference call this morning. It revised upwards its 2017 FFB (group) growth target to 25% (previously 15%) after 1H17 output posted a strong 55% YoY growth. 
  • In arriving at the new guidance, BAL envisages that its 2017’s 1H:2H output ratio to be 48:52 (historically 44:56) which will be a significant departure from 2016’s 38:62 ratio. For this year, monthly output may peak in Oct/No 5).
  • The new guidance validates our earlier view that the crop pattern may mirror that of 2014 with lower QoQ output in 3Q before its peaks in 4Q. As 1H17 nucleus FFB output has thus far met 48% of our full-year forecasts, we are keeping our +22% YoY growth forecast for now.


2H17 earnings could be stronger HoH 

  • In terms of fertilizer application, BAL has completed 73% of its full-year planned requirement in 1H17 (1Q17: 56%). The balance will be mostly administered in 3Q17. 
  • As for palm oil inventory, there was a build-up of +9,091 MT during the quarter, or ~4.4% of its 2Q CPO output. 
  • With 73% of fertiliser cost spent and some build-up in inventory, 2H17’s profitability can be better amidst seasonally higher HoH output, which should offset weaker CPO ASP.


BUY for its medium term growth 2017’s cost guidance is unchanged at +5% YoY. 

  • We are conservatively keeping our earnings forecasts. And we continue to like BAL’s medium term growth story, anticipating a 13% CAGR in its 2016-19 FFB output.




Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-15
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.960 Same 0.960



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