Bumitama Agri - RHB Invest 2016-02-24: Strong FFB Growth, But Not In Sweet Spot Yet

BUMITAMA AGRI LTD P8Z.SI

Strong FFB Growth, But Not In Sweet Spot Yet

We continue to like Bumitama for its FFB growth trajectory, although we highlight that its young age results in FFB yields that are still far from its full potential.
Maintain BUY with a lower SGD1.10 TP (from SGD1.41, 44% upside).
Valuations remain attractive, at single-digit P/Es, while implied EV/ha based on our TP of USD12,500 is within the range of its SGX-listed peers.

As Bumitama Agri (Bumitama) has very young plantation estates (with an average age of eight years), FFB yields of 17.8tonnes/ha in FY15 remain far from its full potential.
Nevertheless, we still like its FFB growth trajectory, although the sweet spot in terms of profit margins would likely be in a few years, when it hits a more optimal prime age.
We expect an additional 15,000ha of new areas to come into maturity in 2016. It posted an admirable 12.7% YoY FFB growth in FY15, higher than our 9% projection.

Although weather has normalised somewhat since January, management is lowering its FFB growth target to 8% for FY16 (from 12-13%), taking into account the El Nino impact.
We thus trim our FFB forecasts to a more conservative 6% for FY16 (from 10%), while projecting growth to recover to 14-19% in FY17-18.

We lower our FY16-17 earnings forecasts by 9-10% after imputing lower FFB production and a higher depreciation charge to account for the change in accounting standard IFRS41, which would be implemented from FY16.
Bumitama is likely to also see a one-off adjustment to its balance sheet this year.
Key risks include the reversal of CPO price trends as well as weaker-than-expected demand.

Maintain BUY on Bumitama, with lower TP of SGD1.10 (post earnings adjustment and after reducing our target P/E to 15x FY16F (from 17x).
We believe that this is a more reasonable valuation target, being its 5-year historical average, as well as implying an EV/ha of USD12,500, which is within the range of the SGX-listed planters of USD10,000-20,000.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-02-24

RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 1.10 Down 1.41