Plantation – Singapore - UOB Kay Hian 2017-11-15: 3Q17 Results Of BAL And GGR In Line; FR Below Expectations

Plantation – Singapore - UOB Kay Hian 2017-11-15: 3Q17 Results Of BAL And GGR In Line; FR Below Expectations Listed Plantation Companies BUMITAMA AGRI LTD. P8Z.SI GOLDEN AGRI-RESOURCES LTD E5H.SI FIRST RESOURCES LIMITED EB5.SI

Plantation – Singapore - 3Q17 Results Of BAL And GGR In Line; FR Below Expectations

  • Bumitama Agri (BAL)’s and Golden Agri-Resources (GGR)’s 3Q17 results were in line with expectations, but First Resources (FR)’s was below expectations due to a higher effective tax rate. 
  • First Resources and Golden Agri lowered their FFB production growth guidance on a slower production recovery in 4Q17. 
  • We cut BAL’s 2017 net profit forecast by 9.5% to factor in lower external crop intake, but maintain 2018-19 estimates. No change to FR’s and GGR’s earnings forecasts for 2017-19.
  • Maintain MARKET WEIGHT.



WHAT’S NEW

  • Bumitama (BAL), Golden Agri (GGR) and First Resources (FR) have reported their 3Q17 results.



Bumitama Agri (BAL SP/ Rating: BUY/ Target Price: S$1.03) 


Results deemed in line. 

  • Bumitama Agri (BAL) reported net profit of Rp273b (-4.1% qoq, +50.8% yoy) for 3Q17 and Rp824b (+74.5% yoy) in 9M17. The weaker qoq results were mainly due to lower CPO ASP and partly dragged by negative margins from the biodiesel segment, while the stronger yoy results were mainly supported by higher sales volume and CPO ASP.

Key highlights from analyst briefing: 

  • Maintain FFB production growth guidance of 25% yoy for 2017. Production ratio is expected at 48%:52% for 1H17:2H17. We raised our FFB production growth forecast to 25% yoy (from 18.3%) to match management’s guidance. However, we cut our external crop purchase forecast for 2017 by 34% as the external crop purchases were lower than our earlier expectations (9M17’s accounted for only 51% of our full-year estimate).
  • 4Q17 FFB production expected to be higher qoq but lower yoy. For 9M17, FFB production was 1.98m tonnes (+42.4% yoy). To meet the FFB production growth target of 25% yoy, 4Q17 FFB production should record 0.75m tonnes (higher qoq but lower yoy).
  • To recap, the record-high production in 4Q16 was mainly due to an abnormal production pattern caused by the lagged impact of the severe drought in 2015 which pushed production forward to 4Q.
  • Most fertiliser costs booked in 9M17, suggesting higher earnings in 4Q17. We gather that about 92% of fertiliser costs were booked in 9M17 (9M16: 67%), while only a small percentage of fertiliser application is likely to be completed in 4Q17. Thus, BAL is likely to report better qoq earnings in 4Q17 on the back of higher FFB production and lower operating costs.
  • Biodiesel delivery has normalised, but negative margins. We understand that the biodiesel delivery has returned to normal. 3Q17 biodiesel sales volume increased > 100% qoq and 14.4% yoy. However, margins were negative as the biodiesel subsidy has been reduced to a pricing formula of CPO base price + US$100/tonne from CPO base price + US$125/tonne.
  • New planting and replanting met 2017 target of 5,000ha. As of 9M17, new planting was about 1,712ha while replanting was about 3,192ha, which met the new planting and replanting target of 5,000ha for 2017.

EARNINGS REVISION/ VALUATION 

  • Cut 2017 earnings estimates but maintain 2018-19 estimates. Although we deemed 3Q17 results to be within expectations, we cut our 2017 net profit estimate by 9.5% to factor in lower external crop purchases estimate as our earlier forecast was too optimistic.
  • Meanwhile, we maintain our 2018-19 earnings estimates. We forecast net profits of Rp1,306b, Rp1,337b and Rp1,504b for 2017-19 respectively.
  • Maintain BUY and target price of S$1.03, based on 13x 2018F PE. We like BAL for its young tree age profile which spells strong production, as well as its hands-on estate management which has allowed BAL to consistently deliver high OER.



Golden Agri Resources (GGR SP/ Rating: HOLD/ Target Price: S$0.34) 


Results within expectations. 

  • Golden Agri (GGR) reported core net profit of US$79m in 3Q17 and US$216m in 9M17, within expectations.
  • Better qoq and yoy results driven by better performance from plantation division.
  • EBITDA improved qoq across all divisions. Meanwhile, the yoy EBITDA increase was mainly driven by better plantation earnings as FFB production rose. This partly mitigated the poor contribution from palm & lauric and oilseeds divisions.
  • Interim dividend. GGR declared an interim dividend of 0.693 cents in 3Q17, translating into yield of 1.8%.

Key highlights from analyst briefing: 

  • Management now expects FFB production growth of 10-15% yoy for 2017 (vs earlier expectations of 15-20% yoy) due to the slower production recovery in 4Q17. We maintain our FFB production growth forecast of 12% yoy for 2017, on a par with management’s revised guidance.
  • Management guides FFB production to grow 10% yoy in 2018, which is marginally higher than our forecast of 8% yoy. Meanwhile, the production pattern is expected to be back to normal with a ratio of 45%:55% in 1H:2H.
  • Replanting target lowered to 7,000ha for 2017 (from 10,000ha), with about 3,100ha replanted as of 9M17. Replanting efforts are likely to accelerate, as about 9% of its trees are above 25 years old. Replanting with the new seeds should raise oil yields in the future.

EARNINGS REVISION/ VALUATION 

  • Maintain net profit forecasts. We are expecting EPS of 2.2 US cents, 1.8 US cents and 2.5 US cents for 2017-19 respectively.
  • Maintain HOLD and target price of S$0.34, pegged at 13x 2018F PE, in line with Singapore plantation companies’ mean PE. Entry price is S$0.30.



First Resources (FR SP/ Rating: HOLD/ Target Price: S$1.95)


Results below expectations. 

  • Core net profit was US$30.2m (+26.7% qoq, -16.1% yoy) in 3Q17, coming in below expectations, mainly due to a higher-than-expected effective tax rate. Operating performance was within expectations. 
  • For 9M17, core net profit was US$100.1m (+49.8% yoy) and PBT of US$49.6m was in line with expectations.

Key highlights from analyst briefing: 

  • FFB production growth guidance lowered to 10-15% yoy for 2017 (from 15% yoy). Management is expecting lower FFB production growth of 10-15% yoy for 2017 as the production recovery in 4Q17 could be slower than earlier expectations – especially for its estates in Central Sumatra. This is in line with the FFB production outlook guided by other plantation companies. Our FFB production growth forecast is 13% yoy for 2017.
  • Biodiesel delivery back on track with small positive net margin. We understand that the biodiesel take-up rate has normalised since Jun 17. Despite the biodiesel subsidy has been reduced to a pricing formula of CPO base price + US$100/tonne from CPO base price + US$125/tonne, FR still managed to register low-single-digit net margin.

EARNINGS REVISION/ VALUATION 

  • Maintain earnings estimates. We forecast EPS of 8.3 US cents, 8.7 US cents and 9.9 US cents for 2017-19 respectively. For 4Q17, we are expecting FR to report flat or marginally higher qoq but weaker yoy earnings.
  • Maintain HOLD and target price of S$1.95, based on 16x 2018F PE, or its 5-year mean PE. Entry price is S$1.75.





Leow Huey Chuen UOB Kay Hian | Ooi Mong Huey UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-15
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.030 Same 1.030
HOLD Maintain HOLD 0.340 Same 0.340
HOLD Maintain HOLD 1.950 Same 1.950



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