Bumitama Agri - UOB Kay Hian 2022-05-13: 1Q22 Results Above Expectations


Bumitama Agri - 1Q22 Results Above Expectations

  • Bumitama Agri’s 1Q22 results beat our expectations on higher PK contributions. Management guided no significant impact from the export ban for now as the announcement was made right before the Lebaran holiday.
  • Having said that, we expect 2Q22 earnings growth to be muted, mainly dragged by lower sales volume and net CPO ASP (impact from Indonesia’s export ban).
  • Maintain BUY rating on Bumitama Agri with a higher target price of S$0.93.

Bumitama Agri's 1Q22 results above expectations.

  • Bumitama Agri (SGX:P8Z)’s 1Q22 results came in at Rp873b (+35%qoq, +>100%yoy), accounting for 39% of our full-year forecast. This is above our and consensus expectations. The strong earnings in 1Q22 were mainly backed by higher contributions from palm kernel with higher palm kernel prices which had increased 40% q-o-q and 80% y-o-y.
  • Better q-o-q performance mainly supported by higher contributions from palm kernel despite lower CPO sales volume and flattish q-o-q CPO ASP in 1Q22. We reckon that the lower q-o-q CPO ASP was mainly due to:
    1. Bumitama Agri delivering the remaining of the forward sales that the company had previously entered at lower prices, and
    2. the impact of domestic market obligation in 1Q22 whereby the company has to commit a certain volume at the price set under the domestic price obligation. q-o-q FFB production came in higher at +19% due to the delay of the production cycle.
  • Higher y-o-y earnings were mainly driven by higher CPO ASP which had increased 77% y-o-y. To recall, Bumitama Agri’s CPO ASP in 1Q21 came in much lower than market prices at that point. Bumitama Agri’s 1H21 ASP was dragged down by significant sales volume that was locked in much earlier in late-21 at a lower pricing as compared with the spot market back then. FFB production was marginally lower at -2.5% y-o-y.
  • Impact from export ban has not been reflected yet as the announcement came in right before the Lebaran holiday and hence Bumitama Agri has not seen any significant impact to their current sales.
  • Interestingly, management had also highlighted that there are not many willing sellers in the market given that the gap between bid/ask prices in Indonesia’s domestic CPO pricing widened after the announcement of the export ban.
  • Storage capacity is still good for one month of production. Bumitama Agri’s end-Mar 22 inventory was slightly higher as compared with end-Dec 21 but it is still relatively low compared with normal levels. Management does not expect operational disruptions as its storage capacity is sufficient for another month of production.

2Q22 outlook.

  • We expect Bumitama Agri's earnings growth to be muted in 2Q22 mainly dragged by the current export ban from the Indonesian government which could lead to lower sales volume. As oil palm trees are in the yield recovery phase and entering high production cycle, 2Q22 production is expected to be higher q-o-q but sales volume is likely to be lower.
  • Based on our channel check, refiners are slowing down in receiving CPO deliveries due to the export ban. To recap, Indonesia is a net palm oil exporter with domestic market only taking up about 1/3 of annual production. There is also a risk of seeing lower realised CPO ASP for 2Q22 vs 1Q22 if the ban prolongs into June.
  • FFB production growth for 2022. For 2022, management has guided for a 5-10% y-o-y nucleus FFB production growth as the production pattern has started to normalise recently. Bumitama Agri has also guided for a ratio of 48:52 for 1H:2H FFB production for 2022. With this, we had factored in a CPO production growth of 10% y-o-y.
  • Secured its full-year fertiliser requirement. Bumitama Agri has managed to secure almost all the fertiliser required for 2022 where about 70% of the total had been delivered to Bumitama Agri. The fertiliser cost is expected to increase by 60-80% y-o-y. The cost of production for 2022 is expected to increase by 20-25% y-o-y.
  • Forward sales and pricing mechanism. Currently, there are no more forward contracts for Bumitama Agri. Yet, about 80% of its total production is in long-term contracts with buyers where only the sales volume is fixed, but not the pricing. Pricing will be set based on the market price on the delivery date.
  • Replanting activities. Bumitama Agri targets to replant about 14,000ha for 2022, where they had replanted about 100ha and fell about 700ha as of end-1Q22.

Revised our earnings forecast for Bumitama Agri

Jacquelyn Yow Hui Li UOB Kay Hian Research | Leow Huey Chuen UOB Kay Hian | https://research.uobkayhian.com/ 2022-05-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.93 UP 0.850