SINGAPORE (May 16): UOB Kay Hian, RHB and Maybank Kim Eng are maintaining their “buy” calls on Bumitama Agri for its growth prospects.
“We like Bumitama Agri for its young tree age profile, which spells strong production, as well as its hands-on estate management which has allowed the group to consistently deliver a high oil extraction rate,” says UOB.
According to Maybank, the “best is yet to come” as Bumitama Agri’s strongest quarter has traditionally been its final quarter when output breaks.
“Trading at just 11x FY17 PER with +24% EPS growth potential, Bumitama Agri remains a ‘buy’ with an unchanged 96 cents target price on 14x FY17 PER, its four-year mean,” says Maybank analyst Ong Chee Ting.
Bumitama Agri reported 1Q17 headline net profit of IDR278 billion ($29.2 million), up 21% on year.
Stripping aside forex, 1Q17 core net profit was IDR270 million met 24% of Maybank’s full-year estimates.
“Bumitama’s 1Q17 earnings came in apparently lower-than-expectations, but that was due to a higher fertilisation activity which took place during the quarter, causing unit costs to spike by 32% y-o-y. We expect costs to decrease and normalise in the coming quarters, resulting in an overall 5% y-o-y increase,” says RHB.
UOB currently expects FFB production growth of 18.3% y-o-y in 2017, slightly higher than management’s expectation of 15% y-o-y.
Growth is expected to come from yield recovery and 14,500ha of new areas coming into maturity in 2017, which should provide for about 2-3% FFB production growth for 2017.
Management indicated that 2Q17 production is still higher than 1Q17’s mainly supported by good weather conditions.
Normalisation of production is expected to kick in 2H17 and the peak production is likely to come in 4Q17, says UOB.
Management also has changed its fertiliser application schedule whereby most will now be applied in 1H and application is targeted for completion by 3Q.
“This would also help improve labour efficiencies as well as take advantage of the drier weather in the first half of the year,” says RHB.
As such, UOB expects higher fertiliser costs to be booked in 1Q from now onwards and lower costs towards the year-end.
For 2017, management is expecting production costs to increase 5% y-o-y, which is within UOB’s expectation.
Bumitama Agri has secured a biodiesel supply contract of 15,344kl for May-Oct 17, which is 15% lower than Nov-Apr 17’s allocation.
According to the Ministry of Energy and Mineral Resource, the biodiesel subsidy will change to incorporate the new pricing formula of the “CPO base price+US100/tonne” from the “CPO base price+US$125/tonne”, most likely effective Jun 17.
But despite the lower biodiesel volume secured and lower biodiesel subsidy, management indicated that the biodiesel segment is still profitable for Bumitama Agri, says UOB.
As at 3.17pm, Bumitama Agri are trading 2 cents higher at 77 cents.
UOB and RHB have target prices of $1.25 and 89 cents respectively.
