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

BUMITAMA AGRI LTD P8Z.SI

Bumitama Agri - An engine of growth

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.

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.

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.

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%).

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