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Bumitama Agri - RHB Invest 2016-05-16: Numbers Expected To Improve In 2H16

Bumitama Agri - RHB Invest 2016-05-16: Numbers Expected To Improve In 2H16 BUMITAMA AGRI LTD P8Z.SI 

Bumitama Agri - Numbers Expected To Improve In 2H16

  • After Bumitama’s FFB production took a hit in the first quarter due to the El Nino impact, it expects FFB production to turn around in the second half of the year to post 8% YoY growth this year. 
  • We keep our BUY call but lower our TP to SGD1.00 (28% upside), after trimming our earnings estimate. 
  • We continue to like Bumitama for its FFB growth trajectory, coming from new areas moving into maturity, and medium-term earnings potential. 
  • Our TP implies an EV/ha of USD11,000/ha, at the low end of its peers’ range of USD10,000-20,0000/ha.


Bumitama still expects FFB production to grow 8% YoY this year 

  • Bumitama Agri (Bumitama) still expects FFB production to grow 8% YoY this year on the back of improving weather conditions since the second quarter, which should translate to better productivity in 2H16. This would be driven by the 20,000 ha of new areas coming into maturity this year, even though its FFB output fell 7.9% YoY in 1Q16. 
  • We still like Bumitama for 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.


Trimming production forecast. 

  • We are, however, reducing our FFB growth forecasts to reflect a 4-5% growth (from 6%) for FY16 to be conservative. 
  • Meanwhile, we maintain our 14-19% growth projection for FY17-18.

Forecasts cut. 

  • We lower our FY16-17 earnings forecasts by 9-10% after imputing lower FFB production for FY16-18. We also cut our CPO price assumption slightly to account for Bumitama’s forward sales of 20% of its output at lower prices.
  • Key risks include the reversal of CPO price trends as well as weaker-than- expected demand.


Reduce TP. 

  • Maintain BUY on Bumitama, with a lower TP of SGD1.00 (post-earnings adjustment) from SGD1.10. 
  • Our TP is based on a 2016F P/E of 15x, which is its 5-year historical average, as well as an EV/ha of USD11,000, which is at the lower end of the Indonesian planters’ USD10,000-20,000 range.




Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-16
RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 1.00 Down 1.10


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