• Maintain BUY, new SGD0.95 TP from SGD0.90, 36% upside. Bumitama Agri’s 1Q22 results are above our and Street estimates. While the current export ban will be negative for all Indonesian players, we do not expect this to be in place for the long term. We expect earnings to remain robust in FY22, while its market valuation of 5.3x CY23F P/E is unwarranted. Assuming it pays out 40% of earnings, its dividend yield is also attractive at c.10% in FY22F.

• BAL booked a >400% YoY rise in 1QFY22 earnings on higher ASP’s. This was above both our and Street expectations, at 38-43% of full-year estimates.

• BAL recorded a FFB decline of 2.5% YoY in 1Q22, below our projection of +3% and management’s guidance of 5-10% growth. Management is keeping to its 5-10% growth guidance as it has started to see improvements in productivity already, with 1Q22 output rising 19% QoQ vs the 4Q21 figure. BAL expects 1H:2H output to be in the 47%:53% range.

• Export ban impact not seen yet. BAL managed to achieve a higher ASP of IDR13,600/kg in 1Q (+0.7% QoQ and 77% YoY). As the export ban was only applicable from end-April prior to the Lebaran holidays in Indonesia, BAL has not seen the impact of this on its ASPs yet, as there have not been any deliveries scheduled yet in May. While BAL does expect prices to come off once deliveries commence, it is also able to hold off on selling significant volumes, given its capacity to store one more month of supply in its existing storage facilities.

• Unit cost to rise 20-25% in FY22F. For 1Q22, BAL recorded a unit cost of IDR4,500/kg (flattish QoQ but up 14% YoY). It has applied approximately 25% of its fertiliser requirements for FY21 so far. For FY22, the company expects costs to rise by 20-25% YoY, given the higher fertiliser prices (by 60- 80% YoY). The company has already tendered for its entire FY22 fertiliser requirements, of which 70-80% has been received.

• We raise FY22-23F earnings by 13-35% after adjusting for higher CPO prices of MYR5,300/tonne for FY22F (from MYR4,300) and MYR4,300/tonne for FY23F (from MYR3,600). As our CPO price assumptions are already lower than prevailing prices, we have not imputed any significant impact from the export ban on BAL’s earnings, as we expect this to be short-lived.

• Maintain BUY, with a higher TP of SGD0.95 (from SGD0.90), after rolling forward our valuation to 8x 2023F P/E. Our TP has already taken into account an ESG discount of 12%, given our in-house ESG score of 2.4. The stock is now trading below -2SD from its 5-year mean (of 9x P/E), which we believe is unwarranted. Assuming the dividend payout is at the maximum 40%, the FY22F dividend yield is also attractive, at c.10%.

Source: RHB Research - 13 May 2022