BUMITAMA AGRI LTD.
P8Z.SI
Bumitama Agri - El Nino impact priced in
- 2Q16 earnings came in below expectations on 38% y-o-y drop in FFB yields.
- FFB output cut to 5-10% drop y-o-y.
- FY16/17F earnings cut 34/24%.
- TP cut to S$0.81 - offering 18% upside.
Dragged by El Nino.
- El Nino had severely impacted Bumitama Agri's (BAL) fresh fruit bunch (FFB) output this year.
- The group now guides its FFB output to drop 5-10% for the year; trimmed from 8% y-o-y expansion in previous guidance.
- We believe the brunt of El Nino impact is mostly priced in; while both output and earnings should bounce back in the short term.
- In this report we upgrade the stock to BUY on bounce in 2H16 earnings prospects.
Cash flow impact manageable.
- BAL reported a 21% y-o-y drop in 2Q16 earnings to Rp139.8bn, which represented only 11% of our initial FY target (vs. 21% historical average).
- A 38% y-oy plunge in FFB yield had dragged 2Q16 performance with little reprieve from 3% y-o-y increase in CPO ASP. The negative output guidance implies 21% drop in FFB yield this year. So from the lower base, we anticipate a 10% recovery in FY17F FFB yield.
- The prospective lower cash flow (vis-à-vis our previous forecast) should be mitigated through refinancing of plasma receivable, totalling c.Rp1.5tn at the end of June 2016.
Earnings forecasts and TP adjusted.
- As we impute 18% and 13% lower forecast FFB yields this year and next; and trimmed CPO ASP by 5% and 7% respectively, we cut the counter’s FY16F/17F earnings by 34% and 24%.
- Our valuation is thus lowered of S$0.81 (vs. S$0.91 previously)
Valuation:
- We employed DCF valuation (FY17F base year) to arrive at BAL’s fair value of S$0.81/share (WACC: 12.4%, Rf: 8.1%, Rm: 15.0%,β: 1.0, TG: 3%) – offering 18% upside from current level.
Key Risks to Our View:
- There would be downside risk to our CPO price forecasts if Pertamina’s biodiesel off-take failed to live up to our expectations (2.5m kl) this year.
- BAL’s output could also fall below our expectations if there is a significant hit to its FFB yield in the aftermath of CY15 El Nino (vice versa).
- Changes in fund flows in or out of emerging markets/commodities would also affect valuations of plantation counters.
Ben Santoso
DBS Vickers
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http://www.dbsvickers.com/
2016-08-05
DBS Vickers
SGX Stock
Analyst Report
0.81
Down
0.910
