Bumitama Agri - DBS Research 2016-05-13: Organic and inorganic growths

BUMITAMA AGRI LTD P8Z.SI

Bumitama Agri - Organic and inorganic growths

1Q16 earnings came in slightly below on lower-than-expected CPO ASP.
New acquisition of 2,982 ha of planted estates boosted new planting to 3,161 ha.
Forecasts and TP unchanged. Maintain BUY for 22% upside.

Bumitama Agri (BAL) posted 1Q16 earnings of Rp229bn (+26% y-o-y) – representing 17% of our full-year target vs. 22% historical average. The drag was principally driven by 20% y-o-y lower crude palm oil (CPO) and 4% y-o-y palm kernel (PK) average selling prices (ASP). 1Q15 numbers were restated to account for reclassification of biological assets as bearer plants – hence no sequential comparison.
We understand that 1Q16 sales volume contained CPO sold in December 2015, but delivered in January 2016. This explained the lower-than-anticipated number when compared to average spot prices (net of export levy) for the period. Also, approximately 195k MT of its CPO output this year (representing c.21% of our full-year target) has been sold-forward to Wilmar at prices ranging from Rp7,182 to 7,364/kg for delivery between July and December 2016.

For the quarter BAL produced 314k MT of own FFB (- 8% y-o-y) and 139k MT of smallholder FFB (-6% y-o-y). The y-o-y drop reflected the lagged impact of dry weather last year, partly offset by output from newly matured estates. The group’s FFB yield dipped by a steeper 21% y-o-y to 3.1 MT/ha. This also reflects dilution from initial contribution of newly matured estates and, to a small extent, newly acquired 2,982 ha of planted estates in West Kalimantan. We understand the newly acquired estates had a total land bank of c.3,000 ha, while the planted estates had an average age of 4.2 years.
Excluding the acquisition, BAL added only c.179ha of new planting in 1Q16. We understand the group intends to maintain its new planting (including acquisition) target of 5k ha this year – of which 70% is attributable to own estates. Approximately 20k ha will come to maturity this year (including acquisition) – of which c.12.8k ha was recognised in 1Q16 (including acquisition). This compares to our current forecast new maturity of 11k ha.

The group had sold 7,000 MT of biodiesel in 1Q16 (down from 7,279 MT in 4Q15) at Rp8,457/kg. We understand BAL intends to expand its biodiesel capacity from 20,000 MT p.a. to 40,000 MT p.a. at a cost of US$4.5m MT (due to be completed by year- end). Having received biodiesel allocation of 20,078 MT in November 2015 to April 2016, BAL’s biodiesel allocation in May 2016 to October 2016 amounts to 23,188 MT. Please note that we do not impute biodiesel contribution in our earnings forecast for BAL.

The group is maintaining its internal FFB volume growth of 8% y-o-y this year; as it expects output to peak in September 2016 with 1H:2H ratio of 40:60. Hence, our earnings forecasts are likewise unchanged.

We maintain BAL’s TP at S$0.96, based on DCF valuation (WACC: 13.2%, Rf: 8.8%, Rm: 15.7%, beta: 1.0, TG: 3%). This implies FY16F PE of 11.9x. Our BUY call is reiterated for 22% upside.
We believe higher earnings contribution in 2H16 would make up for slightly weaker- than-expected 1Q16 performance.

Ben Santoso DBS Vickers | http://www.dbsvickers.com/

CIMB Securities SGX Stock Analyst Report BUY Maintain BUY 0.96 Same 0.96