Bumitama Agri - Maybank Kim Eng 2018-12-13: High Output Growth Weathers Low Prices


Bumitama Agri - High Output Growth Weathers Low Prices

Still a value Buy

  • We lower our earnings forecasts by 6-16% following our industry-wide CPO ASP revisions. Our new Target Price is SGD0.96 (previously SGD0.98) as we roll forward our valuation base year to FY19 from FY18 on unchanged 14x PER peg, its 5-year historical mean.
  • Trading at a low EV/planted ha of ~USD8,250 and < 10x FY19E PER, -1SD of mean, Bumitama Agri (BAL) remains a BUY.
  • We like Bumitama Agri for its good growth prospect and low cost of production.

Cutting CPO ASP forecasts in IDR by 8-14%

  • Following the lower-than-expected CPO spot ASP achieved YTD (to 10 Dec) of MYR2,258/t in Malaysia amidst ample palm oil stockpile, we cut our 2018 industry-wide CPO ASP forecast to MYR2,250/t (from MYR2,450/t, -8%). We also lower 2019-20 forecasts to MYR2,350/t (-6%) and MYR2,500/t (-4%).
  • But given the recent strength in IDR against MYR and USD, our 2018-20E CPO ASP forecasts in IDR are cut by a wider 8-14% to IDR7,875/kg (-8%), IDR7,520/kg (-14%), IDR8,000/kg (-12%).

Higher wages and locked-in fertiliser cost in 2019

  • As 9M18 FFB output has exceeded our target, at 84% of our full-year forecast, we raise our FY18-20F FFB nucleus output by 8%/7%/9%, which implies an output growth of 25%/6%/7% respectively.
  • As for cost pressures arising from higher locked-in fertilizer cost and higher wage bills, we have also reorganized our cost assumptions to reflect them.

Remains an efficient planter in the region

  • Following revisions to our CPO ASPs, FX, output and cost assumptions, we have conservatively cut our FY18-20F EPS by 6%/11%/16% respectively.
  • We continue to like Bumitama Agri for its medium-term growth outlook as we project a reasonably strong +11.9% 3-year FY17-20F CAGR in FFB output, driven by its relatively young tree age profile of 8.9 years.
  • Bumitama Agri remains one of the lower cost producers in the region with all-in operating cost of production of e.MYR1,100/t in FY17.

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/ 2018-12-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.96 DOWN 0.980