Bumitama Agri - RHB Invest 2019-05-14: Weak Start To The Year; Stay NEUTRAL

BUMITAMA AGRI LTD. (SGX:P8Z) | SGinvestors.io BUMITAMA AGRI LTD. (SGX:P8Z)

Bumitama Agri - Weak Start To The Year; Stay NEUTRAL

  • Maintain NEUTRAL with lower P/E-based Target Price of SGD0.62 from SGD0.67, 9% downside.
  • BUMITAMA AGRI LTD. (SGX:P8Z)'s 1Q19 core earnings disappointed, coming in at just 2-4% of our and consensus’ 2019 forecasts.
  • We cut our 2019 forecasts by 35% and lower our 2020-2021 forecasts by 8-15% to account for lower PK price assumptions and higher selling expenses. We have also updated our forecasts to factor in our latest in-house forex projections.



Disappointments came from weaker-than-expected FFB growth and lower product prices.

  • Bumitama Agri's 1Q19 FFB output grew 2% y-o-y on 4,352ha of newly-matured land. This was below management’s 2019 growth guidance of 10- 15% and our projection of 12%. Its average CPO price fell 16.3% y-o-y to IDR6,555/kg, while PK prices fell by a larger 38% y-o-y to IDR4,083/kg.
  • In addition, Bumitama Agri recorded higher-than-expected selling expenses (+84% y-o-y) caused by additional logistics expenses for barge rental.


Briefing highlights:

  • Bumitama Agri continues to expect FFB output growth of 10-15% in 2019, on 7,000ha of new area coming into maturity. This is despite the weak 1Q19 and flattish growth in April and May thus far. Management expects to see a shift in cropping pattern this year, with a 42%:58% ratio for FFB output in 1H:2H, instead of 45%:55%. Weather remains conducive so far this year. We are more sceptical and have reduced our FFB growth projection to 8.3% in FY19 (from 12%), while leaving our 11-13% growth for FY20F-21F intact;
  • Although the logistics shortage issues have been resolved, Bumitama Agri continues to incur rental costs for additional barges on rental contracts taken late last year. This should normalise from 2Q, as the contracts expire;
  • 1Q19 unit cost of IDR4,879/kg was 9% higher y-o-y, due to higher fertiliser prices (+10%), higher fuel costs (+7%), and higher wage costs (+8%). However, management continues to guide for FY19 unit costs to remain flattish y-o-y (at c. IDR3,800/kg) on anticipated improvement in productivity in 2H19. We are conservatively imputing a 5-10% y-o-y rise in unit costs pa.


We cut our 2019 forecasts by 35%

  • We cut our 2019 forecasts by 35% and lower our 2020-2021 forecasts by 8-15%, after taking into account lower PK price assumptions (reduced by 10-15% for 2019F-2020F) and higher selling expenses.
  • We have also updated our forecasts to factor in our latest in-house forex projections.


Still NEUTRAL.

  • Our Target Price is reduced to SGD0.62 from SGD0.67, post earnings changes and after rolling forward our valuation period to FY20.
  • Our target P/E of 12x is unchanged, in line with its peers and within its historical average P/E band of 10-13x. Our Target Price implies EV/ha of USD10,000 – at the low end of its peers’ USD10,000-15,000/ha range.
  • CPO prices will remain the key catalyst for this pure upstream player, although Bumitama Agri is somewhat better off than its peers, given strong double-digit FFB growth.





Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-05-14
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.62 DOWN 0.670



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