Bumitama Agri - DBS Research 2019-12-09: Recovery Mode

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

Bumitama Agri - Recovery Mode

  • FY20F earnings to rise 34% y-o-y, driven by higher CPO prices.
  • Earnings upside capped by pricier external fruits assumption.
  • Value stock in our plantation universe.
  • Maintain BUY with Target Price of S$0.81.



Earnings set to improve y-o-y in 2020.

  • We forecast BUMITAMA AGRI (SGX:P8Z)'s 2020 earnings to grow by 34% y-o-y to Rp800bn due to higher CPO price outlook. We raised our FY20F/21F earnings by 12%/13% to account for better profitability from higher palm oil prices in the year, and more conservative fertiliser application next year.
  • We forecast palm oil price to rebound by 19% y-o-y to US$596 per MT in 2020 before further rebound by 3.5% y-o-y to US$617 per MT in 2021.


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 nucleus FFB output of 4.2% CAGR (including smallholder estates) between FY19 and FY22F.


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 support earnings this year.


Valuation:



Key Risks to Our View:

  • CPO price. Downside risk to CPO price from stronger-than-expected pressure from soybean price, or higher-than-expected CPO output both in Indonesia and Malaysia.





William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2019-12-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.81 UP 0.720



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