Bumitama Agri - RHB Invest 2018-08-15: Fantastic 2Q18 Performance

BUMITAMA AGRI LTD. SGX:P8Z

Bumitama Agri - Fantastic 2Q18 Performance

Maintain BUY and Target Price of SGD0.80, 14% upside, as we believe it is an undervalued company with decent 5-year earnings CAGR of 14%.
Bumitama’s 1H18 earnings were above expectations, as FFB grew at an admirable 23% y-o-y, while CPO costs fell 17% y-o-y. We raise our forecasts by 3-7% for 2018- 2020, after upping our FFB growth forecasts.
Our unchanged Target Price of SGD0.80 is based on the regional peer average 2019F P/E of 11x. Bumitama is trading below its historical average P/E, while the implied EV/ha of USD7,500 is below replacement values.

Bumitama’s 1H18 core net profit came in at 53-55% of our and consensus 2018 forecasts respectively. The better-than-expected results came mainly from stronger-than-expected FFB output, while CPO costs fell 17% y-o-y on lower fertiliser application. Bumitama declared an interim dividend of SGD0.0075.
2Q18 FFB output grew 24.6% y-o-y, on 2,539ha of newly matured land in 1H18. FFB growth during 1H was at 22.6% y-o-y – this is above management’s 2018 growth guidance of 15-20%, and our projection of 16%.

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Bumitama expects FFB output to be stronger in 2H18, at a ratio of 45%:55% for 1H:2H. Based on this guidance, FFB growth for 2018 could be much higher, at >30%. However, management is keeping its growth target of 15-20% for 2018 for now. We are upping our FFB growth forecasts for 2018 to 21% from 16%, but keeping our 15-20% growth forecasts for 2019-2020;
1H18 unit cost of IDR3,987/kg was 17% lower y-o-y. This was due to lower fertiliser being applied during the period (46% of 2018’s provision vs 70% last year), and higher FFB yield. For 2018, management continues to project a 5-10% y-o-y rise in unit costs, on higher fertiliser application volumes (+12.6% y-o-y) and fertiliser prices (up 8-9%). This is in line with our projections;
In 1H18, Bumitama planted 1,078ha 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;

This is achievable as the age profile of its plantations is coming into prime age, leading to strong double-digit FFB growth of 15-20% over the next three years.
Our Target Price is maintained at SGD0.80, based on unchanged target 2019 P/E of 11x – in line with its peers and historical average. This implies 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 2019F P/E averaging at 9-10x vs its historical average of 11-12x.
Key risks include the weather, as well as the global supply and demand dynamics of edible oils.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-08-15

SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800