Bumitama Agri - RHB Invest 2016-11-15: Recovery From El Nino On Track

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BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri - Recovery From El Nino On Track

• Bumitama should see stronger FFB output in 4Q16, which could lead to its strongest quarterly profit for the year. 
• While we expect double-digit FFB growth to return in FY17, this would be offset by higher costs attributed to its younger estates, which are averaging eight years currently. 
• No changes to our forecasts and TP of SGD0.75 (3% downside) for now, pending the analyst briefing this morning.  Our TP reflects 2017 target P/E of 13x and EV/ha of USD8,000. 
• Our NEUTRAL call is maintained.

El Nino impact

• El Nino impact on Bumitama Agri’s (Bumitama) estates has moderated significantly in 3Q16, and it looks set to be in for an even stronger 4Q16. 
• While we maintain our -13% YoY projection for FFB output in FY16, we highlight that this could be conservative given 9M16’s production decline of -10.7% YoY.

Production forecasted to improve more in FY17. 

• We expect Bumitama to post an FFB output increase of 17-20% in FY17-18, barring any unforeseen weather conditions, given its plantations’ rising mature hectarage. 
• We highlight that the probability of La Nina continues to decline, and is now at 58% (from 65% last month) for 4Q16/1Q17.

Key risks 

• Key risks include reversal of CPO price trends and weaker-than-expected Source: Bloomberg demand. Bumitama is relatively sensitive to CPO price movements – every MYR100/tonne change affects net profit by 5-6% pa, based on our estimates.

Maintain NEUTRAL. 

• No change to our earnings forecasts, pending the analyst briefing this morning. 
• We maintain our TP of SGD0.75, which implies 2017 P/E of 13x and EV/ha of USD8,000. This is at a slight discount to peers, which trade at USD10,000-20,000/ha. 
• We believe the discount is justified given Bumitama’s relatively younger estates, and lowered pricing for landbank in the current market environment. 
• For exposure to SGX-listed plantation stocks, we prefer Golden Agri-Resources (GGR SP, BUY, TP: SGD0.46).

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-15

RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.750 Same 0.750