Bumitama Agri - Maybank Kim Eng 2018-06-08: Value Buy

BUMITAMA AGRI LTD. SGX: P8Z

Bumitama Agri - Value Buy

We tweaked our earnings forecasts marginally following our industry-wide CPO ASP revision. Following our EPS revision, our new target price for Bumitama Agri is SGD0.98 (-1%) on unchanged 14x 2018 PER peg (5-year historical mean).
Trading at an EV of ~USD9,000/ha and just 10x FY18 PER, more than 1SD below its historical mean, Bumitama Agri remains a BUY.
We like Bumitama Agri for its good growth prospect and low cost of production.

Following the lower-than-expected CPO spot ASP achieved YTD (Jan-May) of MYR2,442/t in Malaysia and muted near term price outlook amidst still ample palm oil stockpile, we now cut our 2018 industry-wide CPO ASP forecast to MYR2,450/t (-6%).
We also lower 2019-20 forecasts to MYR2,500/t (-4%) and MYR2,600/t (-2%). But given the recent weakness in IDR against MYR and USD, our 2018-20 CPO ASP forecasts in Rupiah were raised to IDR8,560/kg (+4%), IDR8,735/kg (+7%), IDR9,084/kg (+9%).

Indonesian Rupiah has weakened against US Dollar by ~4% compared to a year ago. This has inevitably raised some cost pressures especially for fertilizer which are priced in US Dollar.
Bumitama Agri now guides that 2018’s cash cost will increase by 5-10% y-o-y, driven by
1. higher locked-in fertilizer cost (+8-9% y-o-y) and
2. rising wage bills.
As such, we have also reorganized our cost assumptions to reflect the new guidance.

Following revisions to our CPO ASP and cost assumptions, our FY18-20F EPS are tweaked by -0.4%/-3.2%/+2.2% respectively.
We continue to like Bumitama Agri for its medium-term growth outlook as we project a +9% 3-year FY17-20F CAGR in FFB output, driven by its relatively young tree age profile of 8.9 years.
Bumitama Agri is one of the lower cost producers in the region with all-in operating cost of production at e.MYR1,100/t for FY17.

Ong Chee Ting CA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-06-08

SGX Stock Analyst Report BUY Maintain BUY 0.98 Down 0.990