• Keep BUY, new SGD0.80 TP from SGD0.71, 23% upside. Bumitama Agri’s 1H22 results came in significantly above our and Street estimates. Although CPO prices have moderated so far in 2H22, FFB growth is expected to remain robust, hence keeping earnings strong. BAL’s valuation of 5.3x CY23F P/E is unwarranted, even below -1SD of its historical mean and below its peers’ range of 6-11x. Assuming it pays out 40% of earnings, its FY22F dividend yield is also attractive, at c.13%.

• BAL booked a >280% YoY rise in 1H22 earnings on higher ASPs and FFB output, which was above both our and Street’s expectations at 86-98% of full-year estimates. This was on higher-than-expected FFB growth in 2Q22 (+29% QoQ, +19% YoY) and stronger-than-expected ASPs despite the export ban impact – this led to lower-than-expected unit costs in 1H22.

• BAL recorded FFB growth of 8.7% YoY in 1H22, above our projection of +3% but in line with management’s guidance of 5-10% growth. It had raised its FY22 FFB growth guidance to +16-18%, as BAL continues to see strong growth at its estates while weather has been conducive too. Management also expects 1H:2H output to be in the 50%:50% range. As such, we raise our FFB growth assumption to 14% from 3% while keeping our FY23F-24F growth at 5-6%.

• Strong CPO prices despite export ban impact. Unlike most of its peers, BAL managed to achieve a higher ASP of IDR14,300/kg in 1H (+83% YoY), with 2Q ASP of IDR15,000/kg being 10% and 83% above 1Q22 and 2Q21’s prices. This was achieved despite the export ban impact, which resulted in domestic prices collapsing – likely due to BAL’s long-term relationships with its clients. Nevertheless, 1H22 CPO sales volumes fell 35% YoY as refiners cut back on purchases. Consequently, BAL’s inventory levels rose to c.2 months’ supply, approximately one month more than normal. BAL believes it will be able to normalise this by 3Q.

• Unit costs rose 14% YoY in 1H22, to rise further to 20-25% for FY22F. For 2Q22, BAL recorded a unit cost of IDR5,700/kg (+27% QoQ, +7.5% YoY), bringing 1H22 costs to IDR5,200/kg (+14% YoY). It has applied 50% of its fertiliser requirements for FY22 so far. For 2H22, costs should rise due to higher-priced fertiliser recognised, leading to overall FY22 unit costs to rise by 20-25% YoY, given the higher fertiliser prices (+60-80% YoY).

• We raise FY22F earnings by 45% and FY23F-24F by 10-12% after imputing higher FFB growth and slightly lower unit costs.

• Maintain BUY, with a higher TP of SGD0.80 based on unchanged 7x 2023F P/E. Our TP has already taken into account an ESG discount of 8%, given our in-house ESG score of 2.6. The stock is now trading at 5x 2023F, even below -1SD from its 5-year mean – we believe this is unwarranted. Assuming the dividend payout is at the maximum 40%, the FY22F dividend yield is also attractive, at c.13%.

Source: RHB Research - 15 Aug 2022