BUMITAMA AGRI LTD
P8Z.SI
Bumitama Agri (BAL SP) 2015: Results Supported By Strong FFB Production Growth
- Bumitama’s 4Q15 core net profit jumped 49.2% qoq and 7.8% yoy to Rp327b, coming in within our expectation.
- We forecast FFB production growth of 7.9% yoy for 2016 as production is likely to be affected by the prolonged dry weather in 2015.
- We introduce 2018 net profit forecast of Rp1,592b (+2.5% yoy).
- Management’s production guidance of 8% for 2016 is the highest among peers at this point.
- Maintain BUY. Target price: S$1.10.
RESULTS
Results within expectation.
- Bumitama Agri (BAL) reported net profit of Rp292m (+46.3% qoq, +9.7% yoy) for 4Q15 and Rp891m (-22.8% yoy) for 2015.
- Excluding forex losses and losses from fair value changes in biological assets, core net profit was Rp327m for 4Q15 (+49.2% qoq, +7.8% yoy) and Rp977m (-22.3% yoy) for 2015.
- The strong 4Q15 results were supported by strong fresh fruit bunch (FFB) production growth, partly mitigating the lower crude palm oil CPO) average selling price (ASP).
- The biodiesel segment still posted a good set of results, supported by higher sales volume after securing a contract from Pertamina.
The strongest FFB production.
- 4Q15 nucleus FFB production registered a record high and came in stronger as expected, accounting for 31.6% of 2015 production.
- The strong FFB production was due to an improved of FFB yield of 5.1 tonnes/ha in 4Q15 (3Q15: 4.4 tonnes/ha, 4Q14: 5.0 tonnes/ha).
- In 2015, BAL reported nucleus FFB production of 1.6m tonnes (+12.7% yoy), in line with our expectation.
Associate still in the red.
- Associate’s loss escalated to Rp14.6b in 4Q15 (vs losses of Rp6.6b in 3Q15 and Rp2.4b in 4Q14), bringing full-year losses to Rp67.4b (2014: Rp17.1b loss). This was mainly due to lower yields from newly matured plantation and unrealised forex loss on its US$ borrowings.
Biodiesel sales.
- BAL secured a biodiesel supply contract from Pertamina to supply 20,078 tonnes of biodiesel from Nov 15 to Apr 16.
- BAL delivered about 7,922 tonnes in 4Q15 and payment from Petamina was prompt. The remaining 13,000 tonnes are expected to be delivered in Jan-Apr 16. There is a high probability for this contract to be renewed for another six months and if this is sustained, management will explore expanding its biodiesel capacity from 20,000 tonnes p.a.
STOCK IMPACT
The best FFB production growth guidance for 2016.
- Despite having its planted areas mainly in Kalimantan (which was hit by very dry weather in 2015), management is guiding production growth of 8% for 2016 (vs our forecast of +7.9% yoy).
- We view this as a respectable growth rate and is among the highest production growth guidances so far among peers.
- Production growth will be mainly supported by its young-age profile and more newly matured areas. FFB yield is expected to recover in 2017, coupled with the low base in 2016, FFB production is expected to grow 12.1% yoy in 2017.
Acquisition of land.
- BAL has completed an acquisition of plantation land in Dec 15. The acquired land size is 11,588 ha, of which 4,464 ha were planted with an average age of 23 years old. The acquisition increased BAL’s total planted area by 3% to 164,177 ha as at 31 Dec 15.
- The purchase price of about US$12m translates into US$3,400 per nucleus planted hectare (assuming 20% of plasma area).
- As most of acquired planted area is in old age where the yield is declining, we do not expect any material contribution to BAL’s 2016-17 earnings. These areas are earmarked to be replanted.
Production costs to stay flat or increase marginally yoy.
- Unit cost of production is expected to stay flat or at worst increase by 5% yoy.
- The increase in production costs will come mainly from the rise in the minimum wage but this will partly offset by higher production, which will bring down per unit cost of production. Fertiliser cost is expected to remain flat yoy.
EARNINGS REVISION/RISK
- We maintain our net profit forecasts for 2016 and 2017 at Rp1,244b and Rp1,482b respectively.
- We introduce 2018 net profit forecast of Rp1,592b (+2.5% yoy) on the back of FFB production growth of 16.2% and CPO price assumption of RM2,500/tonne (2017F: RM2,600/tonne).
VALUATION/RECOMMENDATION
- Maintain BUY and target price of S$1.10, based on 15x 2016F PE.
- We like BAL for its young tree age profile, which spells strong production, as well as hands-on estate management to consistently deliver high OER.
SHARE PRICE CATALYST
- Higher CPO prices and higher FFB production growth.
Singapore Research Team
UOB Kay Hian
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http://research.uobkayhian.com/
2016-02-23
UOB Kay Hian
SGX Stock
Analyst Report
1.10
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