Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-01-23: The worst is likely over

Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-01-23: The worst is likely over BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - The worst is likely over

BUY for its decent valuation and growth recovery 

  • After three consecutive quarters of YoY decline, Bumitama Agri Ltd (BAL) finally posted its first quarterly yield recovery for 4Q16, a sign that the worst is likely over. 
  • Its better-than-expected 4Q16 yield recovery will lift our 2016 earnings estimate. 
  • BAL’s 2016 core PATMI will likely beat our forecasts by +16%, but fall within consensus estimates. At ~11x FY17 PER, it current trades at -2SD of its historical mean. 
  • BUY with a TP of SGD0.97 based on 14x 2017 PER (pegged at -1SD of 4-year historical mean).

Better-than-expected yield recovery in 4Q16 

  • BAL announced that its 4Q16 FFB yield rose 3.9% YoY to 5.3t/ha, a positive sign that the lagged impact from 2015’s El Nino may have ended as sufficient rainfall returned to BAL’s estates throughout 2016. 
  • In terms of output, FFB nucleus output was 10% higher YoY at 549,198 MT (+41% QoQ), aided by new areas that entered maturity. This brings 2016 output to 1,513,422 MT (-4.1% YoY), which met 103% of our forecast. 
  • The output also beat BAL’s full-year projected FFB growth decline of -5% YoY.

Better output to mitigate low forward sales prices 

  • BAL has previously guided that it has substantially locked in its 2H16 nucleus output with forward sales totalling 195,000MT to be delivered to Wilmar between June and Dec 2016 (or ~30,000 MT per month). 
  • Prices agreed ranged between IDR7,182-7,364/kg (FOB). And as Indonesia’s spot price has averaged ~IDR9,000/kg in 4Q16, BAL will not fully benefit from the spike in spot prices. 
  • Nonetheless, this was already made known to the market back in 2Q16 and therefore is largely, if not fully, priced in.

Strong 4Q16 results to lift 2016’s earnings 

  • By our estimate, BAL will likely report 4Q16 core PATMI of IDR300b (9M16: IDR490b), bringing our full-year core PATMI to IDR790b; +16% above our existing estimates. 
  • We maintain our forecasts for now pending fresh growth guidance for 2017. 
  • BUY BAL as it has lagged peers in the recent CPO price rally and as it trades at decent ~11x forward PER vs Singapore industry peers at ~15x.

Ong Chee Ting Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-01-23
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.970 Same 0.970