Bumitama Agri - RHB Invest 2017-08-16: Revising FFB Projections Upwards

Bumitama Agri - RHB Invest 2017-08-16: Revising FFB Projections Upwards BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri - Revising FFB Projections Upwards

  • Bumitama revised its FFB growth projections upwards to 25% (from 15%) for FY17F. Although it recorded a phenomenal 55% growth in 1H17, it expects its FFB growth to moderate in 2H17 due to the higher base. 
  • In line with the industry, biodiesel take-up has been slow, while margins have also decreased given the new pricing structure. 
  • We raise our forecasts by 5-7% for FY17F-19F, but lower our TP to SGD0.85 (from SGD0.89, 16% upside) after reducing our target 2018F P/E to 11x (from 13x) to reflect its historical mean. 
  • Valuations are still undemanding at these levels. Maintain BUY.

In line. 

  • Bumitama Agri’s (Bumitama) 1H17 core net profit came in at 47-48% of our and consensus’ FY17 forecasts, in line with expectations. 

Strong 1H17 FFB output. 

  • Bumitama recorded a strong FFB output growth of 54.9% YoY on the back of some 8,800ha of land that came into maturity in 1H17. 
  • The FFB growth is much higher than management’s guidance of 15% growth and our forecasted 17.4% growth.

Upping FFB growth forecasts. 

  • After recording a strong FFB output growth of 54.9% YoY in 1H17, Bumitama Agri (Bumitama) is raising its FFB growth forecast for FY17 to 25% (from 15% previously). As such, we have also raised our forecasts to reflect a 27% growth for FY17 (from 17.4%), but maintain our 15-16% growth projections for FY18F-19F.

Costs to decrease in 2H17. 

  • Bumitama achieved a unit cost of IDR4,805/kg in 1H17, up 9% YoY. 
  • It applied 73% of its fertiliser application in 1H17, with the bulk of the remaining 27% to be applied in 3Q17. 
  • For FY17F, management is keeping its overall expectation of a 5% rise in unit costs YoY.

Delay in biodiesel contract commencement for May-Oct 2017. 

  • Despite Bumitama receiving an allocation of 15,344 kilolitres for the May-Oct period from Pertamina, the contract was only received at the end of June, which means there were minimal deliveries made in 2Q17. This would suggest that Bumitama’s allocation would decrease to 9,744 kilolitres for the period. 
  • With the new lower pricing structure in place (ie CPO+USD100/tonne), management expects margins to be very thin, at less than 2% going forward. As such, we have reduced our margins for this division.

BUY maintained. 

  • We raise our forecasts by 5-7% for FY17F-19F, after taking into account the above-mentioned changes. 
  • We have also rolled forward our TP calculation to 2018 and reduced our P/E target, to reflect Bumitama’s historical mean of 11x (from 13x previously). 
  • Our TP is reduced slightly to SGD0.85, and implies an EV/ha of USD9,000. This is at the lower-end of its peers’ USD9,000- 13,000/ha range. We think this is justified, given Bumitama’s relatively younger estates.
  • We believe valuations remain undemanding at current levels, with P/Es averaging c.10x for FY17F and FY18F, vs its historical average of 11-12x. 
  • No change to our BUY recommendation, as we believe Bumitama’s strong FFB growth trajectory supported by its prime plantation age would help offset the expected decline in CPO price trends.

Key risks 

  • Key risks include the weather fluctuations, as well as the global supply and demand dynamics of edible oils. 
  • Bumitama is relatively sensitive to CPO price movements; every MYR100/tonne change affects net profit by 5-6% pa, based on our estimates.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.85 Down 0.890