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

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).

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.

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.

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