Bumitama Agri - UOB Kay Hian 2021-02-23: 2020 Results Above Expectation

BUMITAMA AGRI LTD. (SGX:P8Z) | SGinvestors.io BUMITAMA AGRI LTD. (SGX:P8Z)

Bumitama Agri - 2020 Results Above Expectation

  • Bumitama Agri reported 2020 core net profit of Rp1,101b (+100% y-o-y), higher than our expectation on better ASP and strong production in 4Q20.
  • We expect Bumitama Agri to continue delivering good earnings in 1H21 with better sales volumes and better CPO prices. However, the positive earnings impact will be offset by its forward sales (accounting for ~15% of 2021 total CPO production) which have been contracted at prices that have yet to factor in the high levy.
  • Maintain BUY. Target price: S$0.65.



BUMITAMA AGRI'S 4Q20 RESULTS


Results above expectation.

  • Bumitama Agri (SGX:P8Z) reported 2020 core net profit of Rp1,101b, slightly above our expectation by 7%. This can be mainly attributed to:
    1. the slightly higher-than-expected fresh fruit bunches (FFB) and CPO production, and
    2. higher-than-expected net realised selling prices.

Better q-o-q and y-o-y earnings.

  • The better q-o-q and y-o-y earnings were mainly buoyed by higher selling prices. CPO sales volumes had increased significantly by 32% q-o-q in 4Q20, mainly due to better FFB volumes from both external and internal production, which had increased by 25% q-o-q.

Production came in strongly in 4Q20.

  • Bumitama Agri achieved its highest production quarter in 4Q20 since 2011 with higher contribution coming from its plasma estates and yield recovery. Bumitama Agri’s FFB yield for 4Q20 was high at 5.9 tonnes/ha (3Q20: 4.7 tonnes/ha).


STOCK IMPACT


Expect earnings to be stable in 1Q21-3Q21...

  • With recent CPO prices trading high at around US$800-900/tonne, we reckon this would continue to benefit Bumitama Agri’s earnings. Earnings would be further boosted by:
    1. better sales volumes with higher palm oil demand on the back of economic recovery, and
    2. its high production in 4Q20 which would be carried forward into 1Q21.

…but Bumitama Agri has forward sold 75% of its nuclear production in 1H21 at prices that have yet to factor in the high levy.

  • We are surprised by the aggressive volume of forward sales that have been locked in for 1H21, and at lower-than-expected prices. The contracted volume is 201,000 tonnes of CPO (about 15% of 2021’s estimated total CPO production) to be delivered in 1H21.
  • The surprise came from the agreed prices, which implies a net price of Rp8,364/kg after factoring in only US$55/tonne of export levy vs the current exports levy of US$255/tonne for Feb 21. The difference in the levy will be absorb by Bumitama Agri, which will translate into much lower realised ASP for 1H21. This would definitely drag down Bumitama Agri’s 1H21 net profit margins. We are factoring this into our revised earnings.

Better sales volume in 2021.

  • With the high production in 4Q20, we expect this to be delivered and realised in 1Q21. Hence, we expect sales volume in 2021 to be further supported by its better production growth in 2021.

FFB production growth for 2021.

  • Despite the higher rainfall in Kalimantan, 4Q20 FFB production still saw a significant increase of 25% q-o-q and 23% y-o-y. 2020 total FFB production growth came in in at 1.5% y-o-y, which is slightly higher than our assumption of 1% y-o-y. For 2021, management has guided for a 10% y-o-y nucleus FFB production growth on the back of the impact from the favourable weather in late-3Q20 to 4Q20.
  • Bumitama Agri has also guided for a ratio of 45:55 for 1H:2H FFB production for 2021. Having said that, we remain conservative by factoring in a 7% y-o-y nucleus FFB production growth.

Lower gearing ratio.

  • Bumitama Agri reported positive cash flow in 2020 with improvements in cash collection from customers. This resulted in a lower q-o-q gearing ratio of 0.58 for 4Q20 compared with 0.71 in 3Q20.


EARNINGS REVISION/RISK


Adjusted our earnings forecast.

  • We have adjusted our net profit forecasts by about 3- 5% for 2021-22, factoring in lower pricing from the forward sales, higher sales volume and some house-keeping.
  • Our net profit forecasts for 2021-23 are at Rp1.16t, Rp1.02t and Rp1.19t respectively.

VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Higher-than-expected CPO prices.
  • Higher-than-expected FFB production.





Jacquelyn Yow Hui Li UOB Kay Hian Research | Leow Huey Chuen UOB Kay Hian | https://research.uobkayhian.com/ 2021-02-23
SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 DOWN 0.700



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