Bumitama Agri - UOB Kay Hian 2020-11-11: 9M20 Results Within Expectation


Bumitama Agri - 9M20 Results Within Expectation

  • Bumitama Agri (SGX:P8Z)’s 9M20 net profit of Rp737b was within our expectation but above consensus expectation. The better q-o-q and y-o-y earnings were mainly uplifted by better selling prices.
  • We expect Bumitama Agri to continue to deliver good earnings in 4Q20-1Q21 with better sales volumes and continued leverage on the current high selling prices. However, there might be a potential drawback if the Indonesian government revises the export levy upwards again.
  • Maintain HOLD. Entry price: S$0.50.

Bumitama Agri's 9M20 results within expectation.

  • Bumitama Agri (SGX:P8Z) reported 9M20 net profit of Rp737b, accounting 72% of our full-year assumption. This is within our expectation but above consensus expectation.
  • The better q-o-q and y-o-y earnings were mainly buoyed by higher selling prices. CPO sales volumes had increased by 6% q-o-q, mainly due to better fresh fruit bunch (FFB) volumes from both external and internal production, which had increased by 11% q-o-q. However, Bumitama Agri's 9M20 FFB production had declined by 6% y-o-y, mainly impacted by the lagged effect of the El Nino in 2019 which led to lower FFB yields, especially in 2Q20.

Expect Bumitama Agri's earnings to be stable in 4Q20-1Q21.

  • With CPO prices trading at high levels of US$750-800/tonne, we reckon this would continue to benefit Bumitama Agri’s earnings. Earnings would be further boosted by better sales volumes with higher palm oil demand on the back of an economic recovery and stocking up for the Chinese New Year.
  • Bumitama Agri has also guided for a ratio of 45:55 for 1H:2H FFB production for 2020, where we expect 4Q20 production to be the highest for quarterly production in 2020.

Potential drawback if Indonesian government announces higher export levy.

  • The Indonesian government might apply a progressively escalating export levy when CPO prices exceed US$695/tonne. Under the potential new system, for every increase of US$25/tonne in CPO prices, the levy would increase by US$15/tonne. However, this is still pending the Indonesian Ministry Of Finance’s approval.
  • If this system kicks off, this would reduce Bumitama Agri’s earnings leverage to rising CPO prices. This is because the bulk of the price increment will go towards the export levy to fund the Oil Palm Plantation Fund.

La Nina impact.

  • Management mentioned that Kalimantan started to experience La Nina starting from Aug 20, which brought about heavy rainfall and caused flooding in some parts of Kalimantan. Having said that, Bumitama Agri’s operations had not been affected by the floods and we reckon that this might have been due to the improved drainage system and water management that Bumitama Agri implemented in their estates since five years ago.
  • Fertiliser application on track. Management mentioned that it would be completed by early-4Q20.
  • Delay in new planting. The initial new planting target for 2020 was at 1,000ha. However, there has been some delay in new planting as Bumitama Agri was unable to release any new area due to some delays in documentation processes.

Maintain 2020 guidance.

  • Management is maintaining its 2020 guidance for Bumitama Agri:
    1. FFB production growth guidance of -5% to 0% y-o-y (vs UOBKH’s 2020F: 0% to +1% y-o-y);
    2. production ratio of 45:55 for 1H:2H;
    3. cost of production growth guidance at +10% to +15% y-o-y; and
    4. capex of Rp1t.
  • Bumitama Agri reported positive cash flow in 3Q20 with improvements in cash collection from customers. This resulted in a lower y-o-y gearing ratio from 0.83 to 0.71 as at 3Q20.

Maintain our earnings forecast.

Leow Huey Chuen UOB Kay Hian Research | Jacquelyn Yow Hui Li UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-11
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.550 SAME 0.550