Bumitama Agri - RHB Invest 2016-11-16: FFB Output To Peak In October

BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri - FFB Output To Peak In October

Bumitama expects its FFB output to peak in October, followed by a subsequent gradual decline. The weather has improved at most of its plantation areas, and management is optimistic of a strong recovery in 2017.
We also expect to see some recognition of deferred tax income from the revaluation of its assets in upcoming quarters. This should provide a boost to profits.

There is no change to our NEUTRAL call and SGD0.75 TP, which implies 2017F P/E of 13x and EV/ha of USD8,000.

With Bumitama Agri’s (Bumitama) FFB production falling 10.7% YoY in 9M16, management expects FFB output to peak in October and gradually decline in November/December. For FY16, it maintains its projection of a 5-10% decline YoY. Although this is higher than our projected 13%, we prefer to remain conservative for now.
Bumitama planted 1,298ha of land in 9M16, and management does not expect to be able to plant up much more landbank for the rest of the year. This is given the intensified environmental regulations in place. Bumitama now has a total planted landbank of 126,481ha, with an estimated 15,000ha left to plant.
An estimated 13,000ha is expected to come into maturity in FY17.

Bumitama’s cash cost in 3Q16 was IDR3,835/kg, or 31% higher YoY. This brought 9M16 cash costs to IDR4,175/kg, ie 6% higher YoY.
Going forward, management expects 4Q16 production costs to be similar to 3Q16’s on lower fertiliser but higher harvesting costs. This is in line with our forecasted 5-7% increase for FY16.

In 9M16, Bumitama delivered 23,800 kilolitres of biodiesel to Pertamina, ie all of its total contracted amount for the May-Oct 2016 period.
For Nov 2016-Apr 2017, Bumitama has managed to obtain an allocation of 18,000 kilolitres. Its newly expanded capacity of 60,000 tonnes pa ought to supply this contract. Management expects to continue to record GPMs of ~10% on biodiesel.

In 3Q16, Bumitama made IDR45bn in tax payments to the tax incentive programme for the revaluation of its assets.
Coupled with an additional IDR28bn payment in 4Q16, it is entitled to claim the deferred tax benefits in future. It is looking to recognise some of these tax benefits in 4Q16, with the rest over the next couple of years.

There are no changes to our earnings forecasts.
We maintain our SGD0.75 TP, which implies 2017F P/E of 13x and EV/ha of USD8,000. This is at a slight discount to its peers, which trade at USD8,000- 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.
Key risks to our call include the weather, and global supply and demand dynamics of edible oils. 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/ 2016-11-16

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