Bumitama Agri - RHB Invest 2017-11-15: Another Strong Quarter, But The Best Is Yet To Come

Bumitama Agri - RHB Invest 2017-11-15: Another Strong Quarter, But The Best Is Yet To Come BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri - Another Strong Quarter, But The Best Is Yet To Come

  • Bumitama still targets to achieve 25% YoY FFB growth for FY17, which implies a 4Q17 output growth of 9% QoQ. This, together with lower CPO unit costs due to smaller fertiliser application in 4Q17, should lead to stronger QoQ earnings growth in 4Q17. 
  • To be conservative, we trim our FFB output forecast for FY17 by 7%, but raise FY18-19 projections by 3- 5% respectively. 
  • We maintain our BUY recommendation, and bump up our TP to SGD0.95 (from SGD0.85, 13% upside). This implies an EV/ha of USD10,000/ha, which is at the low end of its peer range.

In line.

  • Bumitama Agri’s (Bumitama) 9M17 core net profit came in at 68-70% of our and consensus FY17 forecasts respectively. 
  • We expect 4Q17 earnings to come in stronger, on the back of higher FFB output and lower unit costs.

Strong 9M17 FFB output. 

  • Bumitama recorded a strong FFB output growth of 40.9% YoY on the back of some 7,464ha of land that came into maturity in 9M17. The FFB growth is much higher than management’s guidance of 25% growth and our forecasted 27% increase.

Briefing highlights: 

  1. It is maintaining its FY17 FFB growth forecast of 25% YoY. This implies that 4Q17’s output would grow by 9% QoQ. However, management cautioned that the peak period may be slightly delayed to closer to end- 4Q17/early-1Q18. As such, to be conservative, we trim our FY17F FFB growth to 23% YoY, but lift our FY18-19F assumptions to 16-18% YoY respectively (from 15-17% previously); 
  2. Costs to decrease in 4Q17. Bumitama’s 9M17 unit cost was at IDR4,526/kg (+8.4%YoY). It applied 93% of its fertiliser application in 9M17. For FY17, management is keeping its overall expectation of a 5% rise in unit costs YoY, which implies that costs may decline QoQ in 4Q17;  
  3. Smaller biodiesel contract allocation for Nov-Apr 2018. It received a biodiesel allocation of 13,900 kilolitres for the Nov-Apr 2018 period (9.4% lower than its May-Oct 2017 allocation). Given the new pricing structure and the higher feedstock prices, margins have reversed to the red, from < 2% previously. As such, we cut our margin assumptions for this division. 

Still a BUY. 

  • We reduce our FY17 FFB output forecast by 7% but raise our estimates for FY18-19 by 3-5% respectively. We have also raised our target P/E to 12x for 2018 (from 11x), in line with its updated historical average. This lifts our TP to SGD0.95 (from SGD0.85) and implies an EV/ha of USD10,000. This is at the low end of its peer range – its peers trade between USD10,000/ha and USD 15,000/ha. 
  • We think the multiple is justified, given Bumitama’s relatively younger estates. We believe its valuation remains undemanding at current price levels, with its FY18F P/E averaging around 10x-11x, vs its historical averages of 11x-12x. 
  • We maintain our BUY recommendation. 

Key risks

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

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-15
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.95 Up 0.850