Bumitama Agri - Maybank Kim Eng 2018-08-14: 2Q18 Results Marginally Above Expectations

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BUMITAMA AGRI LTD. SGX:P8Z

Bumitama Agri - 2q18 Results Marginally Above Expectations

Trading at just 10x PER; BUY

• After a slow start, Bumitama Agri’s earnings caught up strongly in 2Q18. We are keeping our FY18 earnings forecast. Bumitama Agri remains a BUY with unchanged Target Price of SGD0.98 on 14x FY18 PER, its 5-year historical mean.
• We continue to like Bumitama Agri for its +9% 3-year FY17-20F CAGR in FFB output and relatively low cost of production.
• An interim DPS of 0.75cents was declared.

Earnings lifted by higher output

• Bumitama Agri reported a 2Q18 PATMI of IDR388b (+36% y-o-y, +67% q-o-q). Stripping FX aside, Bumitama Agri reported a 2Q18 core PATMI of IDR413b (+45% y-o-y, +69% q-o-q), bringing 1H18 core PATMI to IDR657b (+18% y-o-y), which met 51%/54% of our/consensus full-year estimates.
• Bumitama Agri’s 2Q18 earnings jump was underpinned by higher revenue (+22% y-o-y, +23% q-o-q), which was in turn boosted by FFB output growth (+25% y-o-y, +31% q-o-q) which more than offset lower CPO ASP achieved of IDR7,786/kg (-3% y-o-y, -1% q-o-q).
• As at 30 June 2018, Bumitama Agri’s inventory figure rose to IDR724b (+40% y-o-y, +44% q-o-q) but Bumitama Agri was quick to downplay the significance of inventory build-up as it was largely due to fertiliser purchased meant for application in 2H18.

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Keeping our 2018’s FFB growth forecast of 16%

• Bumitama Agri recorded a strong 2Q18 FFB output growth of 25% y-o-y. 1H18 output (+23% y-o-y) met 53% of our full-year forecast, higher than its historical 1H:2H 45:55 ratio. In the past, Bumitama Agri enjoys peak crop in Q4. But that trend was broken when output unexpectedly peaked in 2Q17.
• We consider it probable that Bumitama Agri’s 2018 crop pattern may mirror that of either 2017 or 2014. Hence, we keep our +16% y-o-y FFB nucleus output growth forecast, in-line with Bumitama Agri’s growth guidance of 15%-20% y-o-y.

BUY call and earnings forecasts unchanged

• We are keeping our earnings forecasts anticipating an almost flattish h-o-h performance, slightly tampered by lower CPO ASPs and accelerated fertilising application.
• Bumitama Agri has only completed 46% of its full-year fertilising requirements in 1H18 (vs 1H17: 70%).

Risk statement

• There are several risk factors for our earnings estimates, price target, and rating for Bumitama Agri (BAL). Key risks to the palm oil sector and Bumitama Agri are:
  1. weather anomalies resulting in poorer-than-expected output growth,
  2. lower-than- expected CPO price achieved,
  3. negative policies imposed by import countries,
  4. unfriendly policies imposed by the Indonesian government on upstream planters,
  5. sharply lower crude oil prices which makes palm biodiesel demand not viable, and
  6. weaker competing oil prices (like soybean and rapeseed).

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-08-14

SGX Stock Analyst Report BUY Maintain BUY 0.980 Same 0.980