Bumitama Agri - DBS Research 2020-02-18: Recovery Trend To Continue


Bumitama Agri - Recovery Trend To Continue

  • Bumitama Agri's 4Q19 earnings rose 29% y-o-y led by higher palm oil prices.
  • Aiming for earnings growth of 17% in 2020 to Rp800bn.
  • Share price correction in February is an opportunity for bargain hunting.
  • Maintain BUY and S$0.81 Target Price.

4Q19: Higher ASP benefitted performance

  • Bumitama Agri (SGX:P8Z) reported EBITDA and NPATMI of Rp576bn (+12% y-o-y, +15% q-o-q) and Rp261bn (+28.5% y-o-y, +38% q-o-q) in 4Q19 respectively with core earnings of Rp192bn (+2% y-o-y, +42% y-o-y) - largely in line with our expectations. The higher earnings was supported by better revenue, relatively stable cost, and in line pricing of external fruits.
  • Revenue reached Rp2.2tr (+4% y-o-y, +18% q-o-q) in 4Q19, driven by CPO and PK sales volume of 294k MT (-10% y-o-y, +7% q-o-q) and 57.8k MT (+9% y-o-y, -3% q-o-q) with ASP of Rp7,156 per kg (+18% y-o-y, +11% q-o-q) and Rp3,243 (-26% y-o-y, +6% q-o-q) per kg respectively. Even though the ASP improvement did not fully reflect spot prices which recovered substantially in 4Q19, we believe this lagged effect was due to shipment timing.
  • Total processed FFB reached 1.2m MT (+5% y-o-y, -6% q-o-q) with nucleus and external fruits volume at 572k MT (+4% y-o-y, -8% q-o-q) and 615k MT (+6% y-o-y, -4% q-o-q) respectively, resulting in CPO and PK output of 275.5k MT (+9% y-o-y, -5% q-o-q) and 57.5k MT (+20% y-o-y, -4% q-o-q) respectively. Overall output performance was affected by the haze situation last year, albeit there was no significant weather disruption in 2018. This was reflected by 4Q19 (peak season) nucleus FFB yield of 4.9 MT per hectare which lower than 3Q19’s level of 5.3 MT per hectare.

Earnings forecast:

  • Aiming 17% of earnings growth in 2020 We are keeping our NPATMI forecast of Rp800bn (+17% y-o-y) in 2020, and this largely in line with our CPO price forecast of US$596 per MT (+19% y-o-y) in 2020. Key upside risk to our earnings forecast is stronger than expected 1H20 palm oil price as seen YTD with palm oil price above US$620 per MT. The price differentiation against its competitor soybean oil is very narrow currently, while our single digit output forecast is largely within management ‘zero to ten’ (percent) output growth target for this year.

Rating and Target Price: Maintain BUY with unchanged Target Price of S$0.81

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 5.2% CAGR (including smallholder estates) between FY19 and FY22F.

William Simadiputra DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-02-18
SGX Stock Analyst Report BUY MAINTAIN BUY 0.810 SAME 0.810