Bumitama Agri (BAL SP) - Maybank Kim Eng 2017-10-10: Preferred Growth Stock

BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - Preferred Growth Stock

With 73% of fertilising work expensed in 1H17 and high brought forward inventory, 2H17 earnings could be stronger HoH.
Trading at just 11x FY17 PER, we continue to like Bumitama Agri (BAL)’s medium term growth story, anticipating a 13% CAGR in its FY16-19 FFB output.

BUY with a revised Target Price of SGD0.95 (- 1%) based on unchanged 14x 2017 PER (4-year mean) following revisions to our CPO ASP and FX assumptions.

We raise our industry-wide CPO ASP forecast to MYR2,700/t (+12.5%) for 2017 and to MYR2,600/t (+4%) for 2018 as 9M17 FFB output has lagged industry’s expectation, leading to slower-than-expected stockpile buildup and therefore better-than-expected YTD-Sept CPO spot price.
However, after adjusting for our lower MYRIDR FX assumptions for FY17- 19 (-6.1%/-4.5%/-4.5%) and lower Indonesia’s domestic prices for CPO (vs Malaysia) achieved in 1H17, we have revised our net CPO ASP for BAL by +2% to Rp7,528/kg for FY17, -0.3% to Rp7,654/kg for FY18, and -3.0% to Rp7,654/kg for FY19.

Bumitama Agri (BAL) posted a 1H17 FFB output growth of +55% YoY, in part due to the low base effect last year which suffered from El Nino. However, we believe the 2H17 growth rate will be on a decreasing trend.
And unlike previous years whereby 1H:2H output ratio averaged 44:56, FY17’s output ratio could well be 48:52.
For FY17, BAL guides for full-year growth guidance of +25% YoY but we are conservatively keeping our forecasts at +22%. We also keep our output growth forecast of +12% for FY18.

Following our CPO ASP and FX adjustments, we have adjusted FY17-19 net profit forecasts by +4.1%/-0.4%/-5.3%. Our new TP is SGD0.95 (-1%).
Our revised Target Price also incorporates higher SGDIDR assumption (+4%).

Better-than-expected output growth recovery, and CPO price achieved exceeding expectations.
Government friendly policies to encourage new planting, which will allow BAL to restart its aggressive organic growth trajectory.
Higher dividend payments above its current 20-25% payout.

Output growth or CPO price achieved came in below expectation.
Negative policies by government such as recent USD50/t export levies, and higher-than-expected minimum wage increase, pressuring margins.
Extreme drought (like the recent strong El Nino) can have a lagged impact on output (as trees are stressed).
Due to its substitutable nature, a weakening of soybean oil prices could negatively impact the CPO price and ultimately affect its earnings.

Ong Chee Ting Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-10

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.95 Down 0.960