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:
- We maintain our BUY rating with DCF-based Target Price of S$0.81/share (WACC: 10.4%, Rf: 8.4%, Rm: 13.3%, β: 0.8, TG: 3%), offering c.15% potential upside from the current level.
- See Bumitama Agri Share Price; Bumitama Agri Target Price; Bumitama Agri Analyst Reports.
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
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Rui Wen LIM
DBS Research
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https://www.dbsvickers.com/
2019-12-09
SGX Stock
Analyst Report
0.81
UP
0.720
