SINGAPORE (Feb 28): Maybank Kim Eng says Bumitama Agri, trading at just 10 times FY18 earnings and with FY17 results coming within expectations, is one growth stock which is "too cheap to ignore".
FY17 headline PATMI grew 19% y-o-y to IDR1,193 billion ($115.4 million). Adjusted for fair value gain on biological assets of IDR36 billion and forex losses of IDR6 billion, core PATMI grew 27% y-o-y to IDR1,171 billion, meeting 99% of Maybank's forecasts.
Bumitama says was achieved despite unexpected slowdown in Fresh Fruit Bunches (FBB) growth momentum in 4Q17 and a IDR25 billion impairment on its biodiesel plant which is marked for disposal.
The strong FY17 core earnings growth was underpinned by 18% higher FFB output and 10% higher CPO average selling price achieved. Operationally, FFB yield rebounded 12% to 16.4 tonne/ha after El Nino coupled with more areas entering maturity.
However, Maybank was surprised FY17 all-in cost of production came in higher than expected at IDR3,491/kg due to higher wages and unbudgeted water management work.
For FY18, Bumitama expects overall cost to increase by 5-10% on higher fertiliser application and higher minimum wage.
Management has also guided for 15-20% YoY FFB output growth for FY18 driven by its young tree profile of 8.9 years average and with 4% of new area coming into maturity.
"Following the higher cost guidance, we tweaked our financial parameters which led to a 14% cut in our 2018 PATMI forecasts (unchanged for 2019)," says Maybank analyst Ong Chee Ting in a Tuesday report.
For FY18, Maybank expects a 10% core PATMI growth as output continues its growth trajectory. The research house has a "buy" with a higher target price of 99 cents.
Shares in Bumitama Agri are down 1 cent at 74 cents or 10.9 times FY18 forecast earnings.
