Bumitama Agri (BAL SP) - Maybank Kim Eng 2018-02-27: Too Cheap To Ignore

BUMITAMA AGRI LTD. P8Z.SI

Bumitama Agri (BAL SP) - Too Cheap To Ignore

No surprises to 2017 earnings. For 2018, we expect a 10% core PATMI growth as output continues its growth trajectory.
Trading at just 10x FY18 PER, more than 1SD below its historical mean, Bumitama Agri (BAL) remains a BUY with a revised Target Price of SGD0.99 on 14x 2018 PER (5-year historical mean) as we roll forward our valuation year (previously SGD0.95 on 14x 2017 PER).

2017 headline PATMI grew 19% y-o-y to IDR1,193b.
Adjusted for Fair Value gain on biological assets (IDR36b) and FX losses (IDR6b), 2017 core PATMI grew 27% y-o-y to IDR1,171b, and met 99%/105% of our/consensus forecasts – within expectations. This was achieved despite unexpected slowdown in FFB growth momentum in 4Q17 (-22% y-o-y) albeit temporarily, and a IDR25b impairment on its biodiesel plant (which it intends to dispose).

The strong 2017 core earnings growth was underpinned by higher FFB output (+18% y-o-y) and higher CPO ASP achieved (+10% y-o-y).
Operationally, FFB yield rebounded to 16.4t/ha (+12% y-o-y) post El Nino coupled with more areas that entered maturity (+5%).
The key surprise was its higher-than-expected 2017 all-in cost of production which we estimate at IDR3,491/kg (+19% y-o-y). The higher cost was due to higher wages and un-budgeted water management works.
For 2018, Bumitama Agri expects overall cost to increase by 5-10% on higher fertiliser application and higher minimum wage.

Bumitama Agri guides for 15-20% y-o-y FFB output growth for 2018 (MKE: +16% y-o-y) driven by its young tree profile of 8.9 years average and +4% of new area coming into maturity. Following the higher cost guidance, we tweaked our financial parameters which led to -14% cut in our 2018 PATMI forecasts (unchanged for 2019). We also introduce our 2020 forecast.

Ong Chee Ting CA Maybank Kim Eng | Maybank Kim Eng | Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-27

BUY Maintain BUY 0.99 Up 0.950