Bumitama Agri - DBS Research 2018-05-08: Output Supported Performance

BUMITAMA AGRI LTD. SGX: P8Z

Bumitama Agri - output Supported Performance

Bumitama Agri (BAL) booked Rp231.8bn (-16.8% y-o-y, -36.3% q-o-q) net profit after tax (NPAT) in 1Q18, largely in line with our estimate.
The 20% y-o-y output expansion, coupled with relatively stable operational cost, provided a good buffer for profitability and earnings despite the lower crude palm oil (CPO) price y-o-y.

Bumitama Agri (BAL) also reported 1Q18 revenue of Rp1.9tr (-9.1% y-o-y, -7.6% q-o-q) – in line with our expectation.
Crude palm oil (CPO) and palm kernel (PK) sales volume reached 205k MT (+3.2% y-o-y, -0.8% q-o-q) and 44.7k MT (+13.6% y-o-y, +7.3% q-o-q) respectively, thanks to production recovery from the 4Q low last year. However, BAL booked lower CPO and PK ASP of Rp 7,832/kg (-7.3% y-o-y, -3.8% q-o-q) and Rp6,620/kg respectively (-21.5% y-o-y, -11.3% q-o-q) in 1Q18.

Output gained traction in 1Q18 after a weaker than expected 4Q17 due to the late effect of El Nino. CPO and PK output reached 219k MT (+16.9% y-o-y, +6.6% q-o-q) and 44.8k MT (+20.1% y-o-y, flat q-o-q).
Trees fresh fruits bunches (FFB) yield expanded to 4.2MT per hectare (1Q17: 3.5MT per hectare), despite the slightly lower CPO extraction rate of 22.8% in 1Q18 (1Q17: 23.1%) on increased contribution from external FFB.
The output expansion y-o-y was also supported by the still relatively young trees of 8.9 years as at 1st January 2018.

Bumitama Agri’s earnings trend shows that strong volume growth of CPO planters is less vulnerable amid the lower y-o-y CPO price trend. Volume expansion is successfully keeping the cost per ton stable, as reflected in its profitability performance.
Moving ahead, we are expecting stronger earnings trend on continuous strong CPO and PK output momentum for the rest of this year, coupled with improving trend on Bumitama Agri’s ASP as we are expecting CPO price to gradually recover from the 1Q18 low.
We believe Bumitama Agri is poised to record organic growth on maturing palm oil trees and yield expansion from existing producing trees. Moreover, beside the potential better operational leverage from production expansion this year, we see some scope of further margin improvement from higher own estates fruits vs. third parties which could provide some buffer to total operational cost.

Our target price remains at S$0.94 per share given no change in earnings forecast. We have used Discounted Cash Flow (DCF) methodology to value the stock, with WACC and terminal growth rate assumptions of 10.4% and 3.0% respectively.
Our target price implies FY18F P/E of 15.3x.

William Simadiputra DBS Vickers | Rui Wen LIM DBS Vickers | https://www.dbsvickers.com/ 2018-05-08

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