Bumitama Agri - UOB Kay Hian 2020-02-19: 2019 Still Not Out Of The Woods

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

Bumitama Agri - 2019 Still Not Out Of The Woods

  • Bumitama Agri (SGX:P8Z)’s 2019 earnings were below expectation despite the strong earnings recovery in 4Q19. The variance came from lower-than-expected FFB production growth as the impact from the dry weather and haze was more severe than initially assessed.
  • Bumitama Agri is expected to deliver better earnings in 2020, on higher ASPs and positive FFB production growth.
  • We have adjusted our earnings forecasts post production adjustments and higher cost. Maintain BUY with a lower target price of S$0.85.



BUMITAMA AGRI 4Q19 RESULTS


Results below expectations.

  • Bumitama Agri reported core net profit of Rp159.6b (-23% q-o-q, -29% y-o-y) after excluding one-off items of Rp101.9b in 4Q19. The negative variance came from the lower-than-expected production in 4Q19 which could have been due to the dryness and haze in 3Q19 which were more severe than expected. 2019 earnings fell 51% y-o-y to Rp552b, representing only 77% of our full-year assumption and below consensus expectation.
  • For 2019, FFB production was down 2% y-o-y, underperforming management guidance and our assumption of flat y-o-y growth. Higher costs were incurred in 2019 as BAL had applied more fertiliser as some of its trees lacked magnesium.

Good but not great.

  • Operating profit had increased by 9% q-o-q and 7% y-o-y, mainly driven by higher selling prices in 4Q19. Having said that, 4Q19 earnings were below our expectation as we expect better selling prices and higher production.
  • Bumitama Agri’s CPO selling price was at Rp7,156/kg (equivalent to ~RM,2170/tonne), lower than our expectation of RM2,250-2,300/tonne. Average CPO price for 4Q19 was RM2,493/tonne.

Disappointing FFB production in 4Q19.

  • Bumitama Agri’s FFB production dropped 2% y-o-y, below management’s estimate and our assumption of flat y-o-y growth for 2019. FFB production in 4Q19 was slightly disappointing, mainly due to the impact from the dry weather in Indonesia and haze from Aug-Nov 19.


STOCK IMPACT


Positive FFB production.

  • Management guided that FFB production growth for 2020 may go up to 10% y-o-y with the 1H:2H ratio at 45:55. We have penciled in FFB production growth of 3% y-o-y, taking into consideration the potential stress on FFB yield due to the severe dryness in 2019.
  • Based on our channel checks, dryness in Central Kalimantan in 2H19 was more severe than that during the 2015 El Nino. Thus, we prefer to have a more conservative stance for our production expectation.

Higher cost for 2020.

  • With the higher minimum wages in Indonesia, we had also factored in higher labour costs (+8% y-o-y). Management had also guided on higher fertiliser costs for 2020 (+14% y-o-y).

Planting target.

  • Bumitama Agri had managed to plant 2,402ha in 2019 for new planting. The group targets to plant another 1,000ha in 2020. For 2020, 4,000ha are expected to reach maturity; this is lower than the 4,732ha and 7,238 ha for 2018 and 2019.


EARNINGS REVISION

  • We have revised our earnings forecasts by 6-10% post production growth adjustments and higher cost of production projections for 2020 and 2021. We are now expecting 2020-22 net profits of Rp1,099b, Rp1,053b and Rp999b respectively.


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SHARE PRICE CATALYST

  • Higher-than-expected CPO prices.
  • Higher-than-expected FFB production.





Leow Huay Chuen UOB Kay Hian Research | Jacquelyn Yow UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-19
SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 DOWN 1.00



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