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Bumitama Agri - DBS Research 2016-02-22: An engine of growth

Bumitama Agri - DBS Research 2016-02-22: An engine of growth BUMITAMA AGRI LTD P8Z.SI 

Bumitama Agri - An engine of growth 

  • FY15/16F/17F EPS adjusted by -6%/+22%/+52% on changes in our key assumptions 
  • Reported 4Q15 production in line, but ASP is below expectations 
  • TP raised to S$0.95 – offering 23% upside potential; upgrade to BUY 


Poised for strong earnings rebound. 

  • Hikes in our CPO price forecasts should more than offset expectations of stronger Rupiah to drive 34% EBITDA CAGR over the next two years. 
  • CPO output is forecast to expand 9% p.a. over the same period on expectations flat FFB yields. 
  • Over the years, BAL has instituted a stringent water management system in an effort to minimise water deficiency during severe dry conditions. 

Drop in planting not impacting volume growth. 

  • Aggressive expansion in FY05-FY13 has kept BAL’s tree-age profile younger (5.5 years) relative to peers. This is forecast to deliver 10% CAGR in FFB output (including smallholder estates) between FY15F and FY18F. 

Balance sheet can withstand downcycle. 

  • The group’s net gearing ratio is forecast to settle at 59% by the end of FY15E and 56% at end FY16F (after accounting for one-off adjustment to equity on change in biological asset accounting standard). 
  • A stabilising Rupiah should cap BAL’s Sukuk balance (swapped to USD), although the group should still book translation FX losses in FY15E; reversing into translation FX gains in FY16F. 
  • In our estimates, BAL’s borrowing costs should continue to remain lower-than-peers. 

Valuation: 

  • We employed DCF valuation (FY17F base year) to arrive at BAL’s fair value of S$0.95/share (WACC: 12.4%, Rf: 8.8%, Rm: 15.7%, beta: 1.0, TG: 3%). 

Key Risks to Our View: 

  • There would be downside risk to our CPO price forecasts if Pertamina’s biodiesel off-take failed to live up to our expectations (2.5m kl) this year. 
  • BAL’s output could also fall below our expectations if there were significant hit to its FFB yield in the aftermath of CY15 El Nino (vice versa). 
  • Changes in fund flows towards or out of emerging markets/ commodities would also affect valuations of plantation counters.



Ben Santoso DBS Vickers | http://www.dbsvickers.com/
CIMB Securities SGX Stock Analyst Report BUY Upgrade HOLD 0.95 Up 0.86


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