Bumitama Agri - RHB Invest 2020-08-17: Almost Threefold Rise In 1H20 Core Profit; BUY


Bumitama Agri - Almost Threefold Rise In 1H20 Core Profit; BUY

  • Stay BUY with a new P/E-based SGD0.65 Target Price from SGD0.60, 28% upside and c.3% yield.
  • Bumitama Agri's 1H20 core earnings were above expectations, coming in at 65-77% of our and consensus’ 2020F, as the leverage of higher CPO and PK prices pulled earnings up almost threefold in 1H20.

Bumitama Agri recorded a 289% y-o-y rise in core earnings in 1H20

  • Bumitama Agri (SGX:P8Z) recorded a 289% y-o-y rise in core earnings in 1H20, on the back of higher CPO (+26.8%) and PK (+12.4%) prices, offset by lower FFB output (-4.4%). Although FFB output was below our expectations of +4.3% for the year and management’s guidance of +10%, leverage from the spike in selling prices resulted in the earnings jump.
  • In addition, interest income was higher than expected on higher cash balance (+56% y-o-y) due to better ASP.
  • 1H20 DPS was 0.4 SG cents.

Briefing highlights:

  • Bumitama Agri lowered FFB growth projections to flat to -5% (from +10%) for FY20F. While it continues to expect output to improve in 4Q20, it noted that productivity remains weak even into July and August, affected by the dry weather in 2019. The weather has improved, with more rainfall coming through recently.
  • Based on its black bunch census, it noted that despite the fruits being on the trees, the ripening is likely to be delayed to 4Q20 and 1Q21. As such, we lower our FY20F FFB growth assumptions to -2.8% from 4%, but retain 7-9% growth assumptions for FY21F-22F;
  • In 1H20, Bumitama Agri planted up 112ha of new land – on track to hit the 1,000ha of new planting target, while 4,000ha is expected to come into maturity;
  • In 1H20, Bumitama Agri’s cash cost rose by 4.3% y-o-y, due to lower productivity. It guided for FY20 cash costs to be 10-15% higher y-o-y, as it is also changing its fertiliser formulation and raising its application. This is to address the impact of the 2019’s dryness on productivity in 2020. However, the impact of this change will only be seen in 6-12 months. In 1H20, fertiliser application was at 45% of FY20’s requirements, slightly below normal levels. Notwithstanding this guidance, we have already imputed an increase in cash costs of 15-20% y-o-y for FY20, and as such, we now reduce this to reflect a 10-15% increase instead.

Raise earnings.

  • Post adjustment for lower FFB output and cash costs as well as higher cash balances and interest income, we raise our FY20F earnings by 51% and FY21F-22F earnings by 33-38%. We note that Bumitama Agri, being a pure planter, is highly leveraged to CPO prices and unit costs, where every MYR100/tonne change in CPO prices impacts its earnings by 10-12%.

Still BUY.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 UP 0.600