Bumitama Agri - DBS Research 2020-08-17: Beating Our Expectations

BUMITAMA AGRI LTD. (SGX:P8Z)

Bumitama Agri - Beating Our Expectations

Bumitama Agri (SGX:P8Z) posted 1H20 net profit after tax and minority interest (NPATMI) of Rp441.2bn (+87.6% y-o-y), above our expectation. The strong set of numbers was driven by the better-than-expected IDR-based CPO ASP of Rp7,973 per kg (+21.6% y-o-y, -8.4% q-o-q) in 2Q20, compared to other listed peers such as AALI and LSIP, and this was driven purely on sales timing, according to details obtained from management during the briefing.
2Q20 top line reached Rp1.98tr (+11.6% y-o-y, -1.6% q-o-q) the y-o-y improvement was primarily driven by CPO ASP trend. Meanwhile CPO sales volume reached 223.6k MT (-8.4% y-o-y, +6.9% q-o-q) largely on track to our flat CPO output estimate in FY20.
Total FFB production reached 1m MT in 2Q20 (-7.6% y-o-y, +1.4% q-o-q) which consisted of own, smallholders and external FFB of 505k MT (-8.5% y-o-y, +4.6% q-o-q), 235.6k MT (-9.2% y-o-y, +3.4% q-o-q) , and 277.9k MT (-4.3% y-o-y, -5.5% q-o-q) respectively. With largely stable CPO and PK extraction rate of 23% and 4.8%, Bumitama Agri delivered CPO and PK production of 230.9k MT (+2.8% y-o-y, -0.3% q-o-q) and 48.9k MT (+9.0 % y-o-y, +2.8% q-o-q) respectively.

We maintain our FY20 earnings forecast of Rp730bn (+6.4% y-o-y) which is below consensus on more conservative output expansion target this year. This is in line with the industry’s trend, as we expect narrower margin expansion vs. last year level amid tight industry output situation which is likely to lift up external fruit purchases vs. the prevailing fruit purchase formula.
Moreover, management is guiding for a 10-15% climb in cash cost per ton due to weaker-than-expected production but we believe it is well captured in our forecast as we already factored in a relatively flat CPO output in 2020.
We also maintain our FY20 CPO price forecast of US$596 per MT and our overall 2020 ASP assumption. We believe CPO price has legs to average at around our average estimate in 2H20, mainly on still weak output outlook especially in Indonesia due to lagging effect from the dry weather last year.
Output is likely to remain flat until the end of this year. Meanwhile, stronger-than-expected prices recently have been driven by restocking activities from India. See our full report for CPO price 2H20 outlook: Regional Plantations - DBS Research 2020-08-10: A Good Start To 2H20.

We maintain a BUY rating on Bumitama Agri with unchanged DCF-based Target Price of S$0.66, premised on unchanged earnings forecast.
Bumitama Agri is trading at 12.9x, which we believe is undemanding and the share price has not rebounded following the COVID-19 sell-off at end-March. Liquidity also plays a role, but we believe the market would not fully ignore Bumitama Agri on this issue alone, as the estates are well managed, especially amid current improving CPO price trend, averaging at around Rp9,000 per kg in August vs. Bumitama Agri’s 1H20 ASP of Rp7,900 per kg.
See Bumitama Agri Share Price; Bumitama Agri Target Price; Bumitama Agri Analyst Reports; Bumitama Agri Dividend History; Bumitama Agri Announcements; Bumitama Agri Latest News.
Bumitama Agri is one of our top picks besides First Resources (SGX:EB5) in our plantation universe, due to its stronger-than-peers earnings momentum despite its reliance over external fruit purchases to maximise its mill utilisation rate. See also report: First Resources - DBS Research 2020-08-17: Tailwinds From Higher Palm Oil Prices.

William Simadiputra DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-08-17

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