Bumitama Agri - Maybank Kim Eng 2021-02-22: Forward Sales Soured An Otherwise Excellent FY20 EPS


Bumitama Agri - Forward Sales Soured An Otherwise Excellent FY20 EPS

Target price cut to S$0.65 on lowered FY21 earnings prospects

  • Bumitama Agri (SGX:P8Z)'s FY20 core earnings per share exceeded expectations on strong 4Q output and better prices.
  • Bumitama Agri's FY21E earnings per share would have been much stronger y-o-y on up to 10% FFB growth guidance coupled with present high prices. However, substantial forward sales at low prices are party poopers.
  • Following our earnings forecast revisions, we maintain our BUY call for Bumitama Agri with a reduced target price of S$0.65 on 12x FY21E PER peg (its updated 5-yr mean; from S$0.78 on 13x FY21E PER).
  • Based on our 40% dividend payout ratio assumption, we expect an attractive FY20E net yield of 4.9%. Bumitama Agri will announce its final FY20 dividend closer to AGM date.

Bumitama Agri's FY20 core PATMI exceeded our/street expectations

  • Stripping aside FX gain (IDR54b) and fair value gain of biological asset (IDR26b), Bumitama Agri posted a 2H20 core PATMI of IDR623b (+61% y-o-y), lifting FY20 core PATMI to IDR1,145b (+108% y-o-y), which met 112%/119% of ours/street estimates.
  • The stronger 2H20 earnings were lifted by higher CPO ASP (+23% y-o-y) and PK ASP (+43% y-o-y) which offset lower sales (-3% y-o-y) despite 2H20 output rising 7% y-o-y (Figs.2-3).

Forward sales dampens 1H21 earnings outlook

  • For FY20, we estimate Bumitama Agri’s all-in operating cost of production was at Rp4.57m/t (flat y-o-y) or MYR1,321/t.
  • For FY21E, Bumitama Agri is guiding for cash cost per tonne to be flat or slightly lower y-o-y, underpinned by up to 10% FFB output growth given its relatively young trees of average 11.6 years old.
  • However, we understand Bumitama Agri has sold forward ~200,000mt or 35% of its FY21E nucleus output to Wilmar (SGX:F34) at an average IDR8,364/kg, to be delivered between Jan and June 2021. This contract was entered prior to the restructured Indonesia export tax structure in Dec 2020 and it specified that Bumitama Agri is to bear the difference between the ultimate statutory export taxes and agreed upon US$55/t export tax. This contract clause is negative on Bumitama Agri’s earnings as long as CPO spot prices are high.

EPS forecast revised for FY21 (-10%) & FY22 (+12%)

Ong Chee Ting CA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-02-22
SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 DOWN 0.780