Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-10-10: Preferred Growth Stock

Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-10-10: Preferred Growth Stock BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - Preferred Growth Stock


Expect stronger 2H17 earnings 

  • With 73% of fertilising work expensed in 1H17 and high brought forward inventory, 2H17 earnings could be stronger HoH. 
  • Trading at just 11x FY17 PER, we continue to like Bumitama Agri (BAL)’s medium term growth story, anticipating a 13% CAGR in its FY16-19 FFB output. 
  • BUY with a revised Target Price of SGD0.95 (- 1%) based on unchanged 14x 2017 PER (4-year mean) following revisions to our CPO ASP and FX assumptions.


Tweaking net ASP marginally 

  • We raise our industry-wide CPO ASP forecast to MYR2,700/t (+12.5%) for 2017 and to MYR2,600/t (+4%) for 2018 as 9M17 FFB output has lagged industry’s expectation, leading to slower-than-expected stockpile buildup and therefore better-than-expected YTD-Sept CPO spot price.
  • However, after adjusting for our lower MYRIDR FX assumptions for FY17- 19 (-6.1%/-4.5%/-4.5%) and lower Indonesia’s domestic prices for CPO (vs Malaysia) achieved in 1H17, we have revised our net CPO ASP for BAL by +2% to Rp7,528/kg for FY17, -0.3% to Rp7,654/kg for FY18, and -3.0% to Rp7,654/kg for FY19.


Keeping our FY17E FFB output growth at +22% YoY 

  • Bumitama Agri (BAL) posted a 1H17 FFB output growth of +55% YoY, in part due to the low base effect last year which suffered from El Nino. However, we believe the 2H17 growth rate will be on a decreasing trend. 
  • And unlike previous years whereby 1H:2H output ratio averaged 44:56, FY17’s output ratio could well be 48:52. 
  • For FY17, BAL guides for full-year growth guidance of +25% YoY but we are conservatively keeping our forecasts at +22%. We also keep our output growth forecast of +12% for FY18.


Still a BUY 

  • Following our CPO ASP and FX adjustments, we have adjusted FY17-19 net profit forecasts by +4.1%/-0.4%/-5.3%. Our new TP is SGD0.95 (-1%).
  • Our revised Target Price also incorporates higher SGDIDR assumption (+4%).


Swing Factors

Upside

  • Better-than-expected output growth recovery, and CPO price achieved exceeding expectations. 
  • Government friendly policies to encourage new planting, which will allow BAL to restart its aggressive organic growth trajectory. 
  • Higher dividend payments above its current 20-25% payout.

Downside

  • Output growth or CPO price achieved came in below expectation.
  • Negative policies by government such as recent USD50/t export levies, and higher-than-expected minimum wage increase, pressuring margins.
  • Extreme drought (like the recent strong El Nino) can have a lagged impact on output (as trees are stressed).
  • Due to its substitutable nature, a weakening of soybean oil prices could negatively impact the CPO price and ultimately affect its earnings.




Ong Chee Ting Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-10
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.95 Down 0.960



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