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

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 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.

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.

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.

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.

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).

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.

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.

Maintain BUY with a lower target price of S$0.85 (from S$1.00), based on 14x 2020F PE. We like Bumitama Agri for its young tree age profile, which spells better production as compared to peers, as well as its hands-on estate management which has allowed Bumitama Agri to consistently deliver a high oil extraction rate (OER).
See Bumitama Agri Share Price; Bumitama Agri Target Price; Bumitama Agri Analyst Reports; Bumitama Agri Dividend History; Bumitama Agri Announcements; Bumitama Agri Latest News.

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