Bumitama Agri - RHB Invest 2018-05-08: Decent Start To The Year

BUMITAMA AGRI LTD. SGX: P8Z

Bumitama Agri - Decent Start To The Year

We maintain our BUY call and Target Price on Bumitama, as we believe it is an undervalued company with good growth prospects.
1Q18 earnings were in line with expectations, as FFB grew at an admirable 20% y-o-y, while FFB costs fell 16% y-o-y. We expect FFB output and earnings to be skewed towards 2H18 as is seasonally the case.
Our unchanged Target Price of SGD0.85 is based on historical average 2018F P/E of 12x. Bumitama is currently trading below its historical P/E averages, while its implied EV/ha of USD7,400/ha is below replacement values.

Bumitama Agri’s (Bumitama) 1Q18 core net profit came in at 18-20% of our and consensus 2018 forecasts respectively. We consider this to be in line as we expect earnings to pick up in 2H, as is seasonally the case.
1Q18 FFB output grew by 20% y-o-y, on the back of 2,539ha of land, which came into maturity in 1QFY18. This growth is in line with management’s growth guidance of 15-20% and slightly above our 16% projection for FY18.

For 2018, Bumitama is keeping its FFB growth target of 15-20% y-o-y, in line with our 16% projection. While it expects FFB growth to taper from 2H18 onwards, it continues to expect seasonality of FFB output and earnings to be skewed towards 2H18. It maintains its 1H18 and 2H18 output projections at 44% and 56% respectively;
Bumitama’s 1Q18 unit cost of IDR4,487/kg was 16% lower y-o-y albeit 6% higher than 2017’s IDR4,239/kg. The y-o-y decline in unit cost was due to lower fertiliser being applied during the quarter (32% of 2018’s provision vs > 50% last year), and higher FFB yield. For 2018, management continues to project a 5-10% y-o-y rise in unit costs, on the back of higher fertiliser application volumes (+12.6% y-o-y) and fertiliser prices (+8-9%). This is in line with our projections;
In 2017, Bumitama planted 770ha of land. It is on track to hit its 2018 new planting target of 3,000ha, at a cost to maturity of USD8,000/ha;
Management continues to negotiate and consider offers to sell its biodiesel plant land and equipment to recoup the remaining investment cost for its biodiesel plant of IDR130bn.

We make no changes to our earnings estimates, as we expect earnings to play catch up in 2H18.
Our Target Price is maintained at SGD0.85, based on an unchanged target P/E of 12x – in line with its peers and historical average. This implies an EV/ha of USD10,000, ie at the low end of its peer range. Its peers trade between USD10,000-15,000/ha.
Valuations remain undemanding at current price levels, with Bumitama’s 2018F P/E averaging 8-10x vs its historical average of 11-12x. Its current EV/ha of USD7,400/ha is even below the replacement value of USD8,000-10,000/ha.
Key risks include the weather, as well as the global supply and demand dynamics of edible oils.

Singapore Research RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-08

SGX Stock Analyst Report BUY Maintain BUY 0.850 Same 0.850