Bumitama Agri - DBS Research 2019-11-12: Riding The Positive CPO Price Trend


Bumitama Agri - Riding The Positive CPO Price Trend

  • Reported NPATMI reached Rp190bn in 3Q19.
  • Stronger CPO price should translate into stronger 4Q19 earnings.
  • FY20 earnings will be driven by CPO price recovery.
  • Maintain BUY with higher Target Price of S$0.72.

Earnings improved q-o-q - slightly ahead our forecast.

  • BUMITAMA AGRI (SGX:P8Z) reported net profit of Rp190bn (-30% y-o-y, +52% q-o-q). The drop in earnings y-o-y was due to lower CPO prices, while q-o-q improvement was mainly driven by higher output. Bumitama Agri Announcements.
  • We raise our FY19F/20F earnings by 7%/6% to account for the better profitability outlook in 4Q19 mainly to capitalise on the higher palm oil price in the quarter, and also more conservative fertiliser application next year.

3Q19: Volume cushioned the CPO ASP performance

  • Bumitama Agri's 3Q19 top line reached Rp1.9tr (+1.3% y-o-y, +3.3% q-o-q) – the quarterly improvement was driven by the higher CPO and PK sales volume of 274,300 MT (+14% y-o-y, +12% q-o-q) and 59,400 MT (+4% y-o-y, +16% q-o-q) respectively, although we have yet to see the impact of recently higher palm oil price trend on Bumitama Agri’s overall ASP. CPO and PK ASP reached Rp6,421/kg (-6% y-o-y, -2% q-o-q) and Rp3,072/kg (-38% y-o-y, -8% q-o-q) respectively.
  • Total processed FFB reached 1.26m MT (-6% y-o-y, +14% q-o-q), with each own and external fruits production of 623,000 MT (-1% y-o-y, +13% q-o-q) and 639,000 MT (-10% y-o-y, +16% q-o-q) of third party (external + plasma) respectively, and this resulted in higher CPO and PK output of 288,000 MT (-1% y-o-y, +17% q-o-q) and 59,700 MT (-1% y-o-y, +17% q-o-q) respectively.
  • Overall volume improvement drove up the profitability performance as cost per hectare for palm oil business is relatively fixed, and this translated into NPATMI performance of Rp190bn (-29.7% y-o-y, +52.1% q-o-q), which is slightly ahead of our forecast.

Earnings forecast: We are keeping our earnings forecast for now

  • We raise our FY19F/20F earnings forecasts by 7%/6% to Rp595bn (-46% y-o-y) and Rp712bn (+19.7% y-o-y) respectively to account for the potentially stronger 4Q19 performance due to strong palm oil price trend in the quarter, and more conservative fertiliser application next year.
  • Our earnings forecast was largely below the street estimate mainly due to more conservative margin assumption. We believe the higher palm oil price may also mean pricier external fruits which offset the margin expansion potential. Bumitama Agri purchases around 50% of its processed fruits from third parties, both plasma and external party estates.

Rating and Target Price: Maintain BUY with slightly higher Target Price of S$0.72

  • We maintain our BUY rating with a slightly higher Target Price of S$0.72 accounting for our slightly higher earnings forecast.
  • We believe Bumitama Agri's share price will ride along with the positive momentum of CPO price in 4Q19 which is mainly driven by the expectation of modest output expansion q-o-q and China-US trade deals which to drive short-term soybean rices.
  • See Bumitama Agri's share price; Bumitama Agri Target Price.

Where we differ:

  • CPO price and volume expansion will underpin earnings growth. Higher milling capacity outlook is positive for Bumitama Agri’s profitability. Moreover, we believe the aggressive expansion in FY05-13 has kept Bumitama Agri’s tree-age profile younger relative to peers, with positive FFB output of 8.6% CAGR (including smallholder estates) between FY18 and FY20F.

Potential catalyst:

  • Re-rating on performance delivery. We believe the liquidity discount placed on the counter is excessive.
  • Stronger output in the second half of the year should help to vide a buffer to earnings this year.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 0.72 UP 0.690