RHB Securities 2015-08-14: Bumitama Agri - Front-Loading Of Manuring Hurts Results. Maintain BUY.


Front-Loading Of Manuring Hurts Results 

  • 1H15 results were weaker than expected on front-loading of fertiliser application. Production growth was also below expectations. However, we believe both of these factors should reverse in 2H, resulting in better numbers ahead. 
  • Maintain BUY as Bumitama remains a good growth stock to own. Our TP is unchanged at SGD1.44 (60% upside), based on 16x 2016 earnings. 

 Results poorer than expected. 

  • Bumitama Agri’s (Bumitama) 1H15 results were weaker than expected due to early application of fertiliser, weaker-than-expected YTD production growth and lower-than-expected prices. 

 Sped up fertiliser application. 

  • The company has applied 71% of its fullyear fertiliser application by 1H15 compared with 45% last year, likely in anticipation of dry weather ahead. This resulted in its cash cost rising to IDR5,090/kg in 2Q15 vs IDR4,280/kg last year. This also means its cash cost will be lower than normal in 2H15. 

 Maintains production growth guidance. 

  • Management maintains its guidance of 20% production growth this year against YTD growth of 2.4%, as it believes 2H15 production should be significantly better. We believe our forecast of 14.6% is still achievable given that 2Q production last year was unusually strong, leading to a negative YoY growth this year. In comparison, 3Q production weakened QoQ last year, making it easier for growth to catch up in 2H15. 

 Weather update. 

  • Bumitama reported normal weather conditions in 1H15 but some lower-than-normal rainfall in both west and central Kalimantan. 

 Decline in inventory. 

  • Palm oil inventory declined to 27,000 tonnes at end-2Q15 compared to 37,000 tonnes at end-1Q15. Golden AgriResources (GGR SP, BUY, TP: SGD0.53) also reported a 7% decline in inventory from end-1Q. 

 Maintain forecast. 

  • We are maintaining our forecast as we believe it is still achievable. Key risks include weaker than expected production and/or palm oil price

Singapore Research | http://www.rhbgroub.com/ RHB Securities 2015-08-14
BUY Maintain BUY 1.44 Same 1.44