Bumitama Agri - Maybank Kim Eng 2016-08-08: Weak 2Q results priced in; U/G to BUY

BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri - Look forward to 2017 yield recovery

We cut our FY16-18 EPS by -30%/-16%/-10% factoring fresh growth guidance.
El Nino’s impact on output is temporary and we expect FFB yield to normalise for Bumitama Agri (BAL) in 2017. The negatives have been largely priced in with valuations down to just 10x 2017 PER.

We upgrade BAL to BUY with a new TP of SGD0.97 as we roll forward our valuation base year with a 14x FY17 PER peg.

Reported 2Q16 PATMI was IDR108b (-39% YoY, -53% QoQ). Excluding forex losses of IDR3b, core PATMI was IDR110b (-38% YoY, -43% QoQ). This brings 1H16 core PATMI to IDR303b (-14% YoY) or 28%/31% of market/our FY16 forecasts – below expectations.
The 2Q results weakness stemmed from slower-than-expected 2Q FFB output (-26% YoY, -17% QoQ) mitigated by higher CPO ASP achieved (+3% YoY, +28% QoQ).

Production disappointed as 1H FFB nucleus output met just 34% of our FY16 forecasts as output contracted 17% YoY. This is in stark contrast with BAL’s earlier full year growth guidance of +8%.
Management has now revised down growth guidance to a -5% to -10% YoY range for 2016.
We cut our FY16-18 FFB output by -14%/-10%/-7% respectively which implies YoY FFB growth of -7%/+25%/+13% over the same period.

BAL expects FFB output to peak in the usual final quarter which means we will only see significant earnings recovery towards 4Q16. Nonetheless, as the El Nino impact is temporary and taking a 12M view, anticipating a normalised yield in 2017, we see value in BAL.
Recent share price weakness has largely priced in the negatives. Our new SGD0.97 TP is based on 14x FY17 PER (previously SGD0.77 on 13x FY16 PER), pegged at -1SD of historical mean to reflect the recent slowdown in nucleus plantings.
We upgrade BAL to a BUY.

Ong Chee Ting CA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-08

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