Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-05-23: In A Sweet Spot

Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-05-23: In A Sweet Spot BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - In A Sweet Spot

Increasing appeal via higher dividend payouts 

  • Slowdown in new planting will lift and boost BAL’s positive FCF in FY17- 19. BAL is considering raising its dividend payout to up to 50% (from 20%) from FY17. 
  • We raise our payout assumptions to 30% (from 20%) leading to FY17-19 net dividend yields of 2.6-3.6%. 
  • Trading at just 11x FY17 PER with strong 2-year forward EPS CAGR of 28%, BAL remains a BUY with an unchanged SGD0.96 TP on 14x FY17 PER, its 4-year mean.

A well received NDR 

  • We recently hosted a 1.5-days non-deal roadshow (NDR) for BAL in Kuala Lumpur, meeting over 30 funds managers/analysts and over 20 retail investors. Key takeaways: 
    1. BAL envisages positive FCF on slowing upstream expansion. Compliance with the stringent new planting procedure (NPP) required of RSPO and adoption of “no deforestation, no peat, and no exploitation” policy will slow its new planting to ~3,000ha p.a. (2006-16: averaged 11,000ha p.a). 
    2. BAL has ~15,000ha of net plantable reserves, but is still on the lookout to acquire more estates.
    3. BAL is set to enjoy uninterrupted organic growth over the next 5 years, reaping the rewards of its aggressive planting in the past, with young oil palm trees averaging 8.7 years (as at 1 Jan 2017).

Potentially raising dividend payouts to 50% 

  • Maturing trees and slowing capex are set to lift BAL’s positive FCF in the coming years. By our estimate, it has one of the highest FCF yield (8%- 9%) in our universe of coverage. 
  • As BAL has no plans to go downstream or pursue crop diversification, it is considering raising its dividend payouts to up to 50% (presently up to 20%). In FY16, it paid 25% of earnings.

Transitioning into a dividend yield stock 

  • We raise our FY17-19 dividend payouts to 30% (from 20%), lifting BAL’s net dividend yields to 2.6-3.6%. 
  • We continue to like BAL for its medium term growth prospects, anticipating a 13% CAGR in its 2016-19 FFB output. 
  • Current valuation ignores its growth potential and rising yields.

Ong Chee Ting Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-23
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