Bumitama Agri - Maybank Kim Eng 2016-07-22: Expect poor 2Q16 results

BUMITAMA AGRI LTD P8Z.SI

Bumitama Agri (BAL SP) - Expect poor 2Q16 results

Our below-consensus earnings forecasts could still fall short of expectations following worse-than-expected 2Q16 output (-26% YoY, -17% QoQ) on El Nino’s lagged impact.
We have probably witnessed the worst of YoY yield declines in 2Q16 but there is heightened risk that BAL will miss its 8% FFB growth guidance for 2016.
We keep our earnings forecasts pending fresh guidance.

BAL announced that its 2Q16 FFB yield fell 40% YoY to 2.5t/ha; a lagged impact from 2015’s El Nino.
In terms of output, FFB nucleus output was 26% lower YoY at 261,810 MT (-17% QoQ). This bring 1H16 to 575,697 MT (-17% YoY), which met just 34% of our full year forecast.
The output lags BAL’s full year FFB growth guidance of 8% for 2016.

In 2Q16, MPOB’s spot CPO price averaged USD650/t (+8% YoY, +13% QoQ). Taking into account the USD50/t CPO export levy imposed by the Indonesian government since 16 Jul 2015, the net CPO price received will likely be flattish YoY but +15% QoQ.
Given the low output, we estimate BAL will report 2Q16 core PATMI of IDR143-172b (1Q16: IDR193b) or just 15-18% of our full-year earnings estimates (below expectations).

We have probably witnessed the worst quarterly YoY decline in 2Q16 as the lagged impact of El Nino typically peaks 6-9 months from the last drought.
Although we expect significantly better 2H16 output, there is risk that our 8% FFB output growth imputed forecast for 2016 may not be achieved.
On the brighter side, its 2H16 forward sales to Wilmar equivalent to MYR2,450/t (gross) CPO price have locked in much of its 2H earnings visibility.
BAL remains a HOLD with TP of SGD0.77 on unchanged 13x 2016 PER (pegged at -1SD of historical mean to reflect recent slowdown in nucleus plantings).

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22

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