Bumitama Agri - Maybank Kim Eng 2019-06-28: Low Cost Structure Buffers Downside


Bumitama Agri - Low Cost Structure Buffers Downside

BUY for yield and decent medium term growth

  • We lower our FY19-20E EPS forecasts by 7%-13% following our industry-wide CPO ASP revisions. Our new Target Price is SGD1.01 as we roll forward our valuation base year to FY20 on an unchanged 13x PER peg, its 5-year historical mean (previously SGD0.97).
  • BUMITAMA AGRI LTD. (SGX:P8Z) remains a BUY as we like Bumitama Agri for its medium-term growth prospect and low cost of production.
  • The stock offers a decent dividend yield of ~4%, backed by its dividend payout policy of up to 40% of recurring income. See Bumitama Agri's dividend history.

Revising CPO ASP forecasts in IDR by up to -4.5%

  • Following the lower-than-expected CPO spot ASP in 1H19 amidst ample palm oil stockpile, we cut our 2019 industry-wide CPO ASP forecast to MYR2,100/t (from MYR2,350/t, -10.6%). We also lower 2020-21 forecasts to MYR2,300/t (-8.0%) and MYR2,400/t (-5.9%).
  • But given the recent weakness in IDR against MYR, the impact to our 2019-21E CPO ASP forecasts in IDR is smaller at IDR7,182/kg (-4.5%), IDR7,832/kg (-2.1%), and IDR8,172/kg (+0.1%).

Relatively young trees to drive growth

  • For FY19, Bumitama Agri has kept its guidance of up to +15% FFB growth for FY19 (FY18A: +28% y-o-y) vs MKE’s forecast of +9% y-o-y. Growth will be driven by its relatively young tree age profile of 9.8-years and ~7k ha of new area coming to maturity (+4% of mature area). And we continue to like Bumitama Agri for its medium-term growth outlook as we project a ~6% 3-year FY18-21E CAGR in FFB output.

A low cost producer in the region

  • Following revisions to our CPOSPs and FX assumptions, we have cut our FY19-20E EPS by 13%/7%, and left our FY21E EPS relatively unchanged. Besides its relatively trees, we like Bumitama Agri for its cost, being one cost producers in the region with all-in operating cost of production estimated at below MYR1,000/t in FY18.
  • See also sector report: Regional Plantation - A Better 2H In The Making.

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.01 UP 0.970