Bumitama Agri - Maybank Kim Eng 2016-04-25: Upside limited; D/G to HOLD

Bumitama Agri - Maybank Kim Eng 2016-04-25: Upside limited; D/G to HOLD BUMITAMA AGRI LTD P8Z.SI 

Bumitama Agri (BAL SP) - Upside limited; D/G to HOLD 

Weak 1Q16 results to cap share price 

  • Given the limited upside to our unchanged TP, we downgrade the shares to HOLD (from BUY). 
  • Also, similar to other Singapore listed planters, we expect 1Q16 to come in below our and street estimates due to low 1Q16 FFB output, low spot CPO ASP, and new annual depreciation charges following the revised FRS 16 and 41 accounting standards (effective 1 Jan 2016). 

Low 1Q16 FFB output on El Nino impact 

  • Last Friday, BAL announced that its 1Q16 group FFB yield contracted 24% YoY to 3.1t/ha; a lagged impact from 2015’s El Nino. 
  • In terms of output, FFB nucleus output was 313,887 MT (-8% YoY, -37% QoQ), which met just 17% of our full year forecast. This output pales in comparison to BAL’s FFB (group) growth guidance of 8% (MKE: +14% YoY) for 2016. 
  • Still, 1Q16 weak output could be partly mitigated by higher sales from the drawdown of inventories brought forward from last year. 

1Q16 results likely below expectations 

  • In 1Q16, MPOB’s spot CPO price averaged USD576/t (-8% YoY, +14% QoQ). 
  • Taking into account the USD50/t CPO export levy imposed by the Indonesian government since 16 Jul 2015, the actual CPO price proceeds received will be even lower YoY. 
  • Given low output, low CPO ASP and IDR110b (net of tax) new annual depreciation charges effective 1 Jan 2016, we estimate BAL will report 1Q16 PATMI of IDR100-140b or 9-12% of our and streets’ full-year earnings estimates (below expectations). 

Downgrade to HOLD 

  • There is a good chance that FFB yield and output growth may continue to show YoY contractions in 2Q16 such that BAL may not fully benefit from the recent CPO price hike. 
  • We downgrade BAL to HOLD while keeping our EPS forecasts unchanged for now. 
  • Our TP of SGD0.85 is based on 13x 2016 PER, which is -1SD below its historical mean to reflect recent slowdown in nucleus plantings and relatively low Indonesia CPO price.

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-25
Maybank Kim Eng SGX Stock Analyst Report HOLD Downgrade BUY 0.85 Same 0.85