Bumitama Agri - UOB Kay Hian 2020-08-17: 1H20 Results Within Expectation; Downgrade To HOLD


Bumitama Agri - 1H20 Results Within Expectation; Downgrade To HOLD

  • Bumitama Agri reported core net profit of Rp544b for 1H20, within our expectation. The better y-o-y earnings was mainly due to better selling prices despite lower sales volume and FFB production.
  • We expect Bumitama Agri to deliver a better 2H20 on the back of higher sales volume and better selling prices.
  • Downgrade to HOLD with target price of S$0.55 as Bumitama Agri's share price had increased by 16% from July to date.
  • Entry price: S$0.50.

Bumitama Agri's 1H20 Results

  • Bumitama Agri (SGX:P8Z) reported core net profit of Rp544b, accounting 53% of our full-year assumption. This is within our expectation but above consensus expectation.

Better y-o-y earnings.

  • The better y-o-y earnings in 1H20 was mainly supported by higher selling prices despite lower sales volume and lower CPO production. Both CPO and PK prices had increased by 27% and 12% y-o-y respectively in 1H20. The lower sales volume in 1H20 was mainly due logistics disruption during the COVID-19 period. There was slight inventory build-up towards end-Jun 20, which will be delivered in 3Q20.

Expect better 2H20.

  • We expect better 2H20 for Bumitama Agri on the back on higher FFB and CPO production as Bumitama Agri has guided for a ratio of 45:55 for the 1H:2H FFB production for 2020. Further to that, we expect sales volume to be higher as logistics issues should be mostly resolved in 2H20, coupled with higher selling prices.

Revised FFB production for 2020.

  • It did not surprise us when Bumitama Agri revised its FFB production growth guidance of 0-10% y-o-y to -5% to flat y-o-y in 2020. As we had highlighted previously, 2020 is a tough year for Indonesia production mainly due to the more severe-than-expected impact from the extreme dryness in 2019.
  • The dryness hit Central Kalimantan and West Kalimantan for most of 2H19, which was more severe than that seen during the 2015 El Nino. This would impact the FFB production in 2Q20 to late 3Q20. About 60% of Bumitama Agri estates are located in Central Kalimantan. Hence, we have pencilled in flat y-o-y FFB in 2020, and keeping our earnings forecast.

Lower fertiliser application in 1H.

  • Bumitama Agri applied 45% of fertiliser of its full-year fertiliser amount in 1H20, which is lower than usual. This was mainly due to the rainy season that prevented the company from applying fertiliser. Having said that, management mentioned that they will catch up on fertiliser application in 2H20.
  • In addition, management also guided that higher fertilizer application is expected for 2020 on those marginal soil areas, which were affected by recent high rainfall in May-Jul 20. The impact of higher fertiliser application would likely translate into better yield 12 months later.

Capex of Rp1t

  • Management had set aside a capex of Rp1.0t mainly for new planting and the building of a new mill. BAL also targets to have new planting of up to 1,000 ha in 2020, vs 2019’s planted 2,402 ha. The new mill is expected to be operational in 2021.

Bumitama Agri - Valuation & Recommendation

Jacquelyn Yow Hui Li UOB Kay Hian Research | Leow Huey Chuen UOB Kay Hian | https://research.uobkayhian.com/ 2020-08-17
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.55 DOWN 0.600