Bumitama Agri - Maybank Kim Eng 2016-05-15: Forward sold 2H16’s output

BUMITAMA AGRI LTD P8Z.SI

Bumitama Agri (BAL SP) - Forward sold 2H16’s output

1Q16 results fell short on low output and low CPO ASP achieved.
2Q16 output is likely to be weak, but we expect a sharp recovery in 2H16.
BAL has sold forward most of its 2H16 output to Wilmar at ~MYR2,200/t (net of CPO export levy) which essentially locked in much of its earnings.
We cut 2016 EPS by 11% following the weak 1Q results.

BAL reported a 1Q16 headline net profit of IDR229b (+26% YoY, -22% QoQ).
Stripping aside forex, 1Q16 core net profit was IDR193b (-6% YoY, - 41% QoQ) which met 17%/15% of our and consensus full-year estimates.
The below expected results were due to
1. low FFB output of 313,887 MT (-8% YoY, -37% QoQ) which met 17% of our full year forecast, and
2. low CPO ASP of IDR6,280/kg (-19% YoY, +6% QoQ), in part due to the USD50/t CPO export levy imposed since 15 July 2015.
This was mitigated by drawdown in inventories (-16,000 MT) from 4Q15’s crop.

BAL took a defensive strategy to sell forward 195,000 MT of 2H16’s output (or 30,000-32,000 MT per month) to Wilmar with prices ranging from IDR7,182-7,364/kg (FOB, and net of CPO export levy). This is equivalent to MYR2,450/t (gross, ie before CPO export tax) at the point of contract.
The forward sales represent ~50% of our 2016 FFB nucleus output forecasts, leaving only 33% output subject to open market prices.

Following weak 1Q16 results, we shaved 11% of our FY16 net profit forecast as we cut our FFB output (-5%) to be inline with BAL’s FFB growth guidance of 8%. FFB output will be the strongest in 2H16 to play catch up.
We lowered our TP to SGD0.80 (-6%) based on unchanged 13x 2016 PER (pegged at -1SD of 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/ 2016-05-15

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