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RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Fri, 3 Feb 2023, 11:31 AM

 

Bumitama Agri - Closing in on a Record Year; Maintain BUY  

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  • Maintain BUY and SGD0.80 TP, 30% upside. 9M22’s results were in line with our but significantly above Street’s estimates. 4Q earnings will be boosted by inventory drawdowns in 4Q22, in our view, while FFB growth should remain robust. Bumitama Agri’s valuation of 5.4x CY23F P/E is unwarranted, even below -1SD of its historical mean and at the low end of its peers’ range of 5-9x. Assuming it pays out 40% of earnings, BAL’s FY22F dividend yield of c.13% is also attractive.
  • BAL booked a >160% YoY rise in 9M22 earnings on higher ASPs and FFB output. This was in line with our (75%) but above Street’s (97%) full-year estimates.
  • BAL recorded 9M22 FFB growth of 13.8% YoY, largely in line with our projection of +14% but below management’s guidance of +16-18%. The company maintains its FY22 FFB growth guidance at +16-18%, as flooding has subsided at its estates and rainfall is easing somewhat. Management continues to expect 1H:2H output to be in the 50%:50% range. We keep our FY22 and FY23-24 FFB growth assumptions at 14% and 5-6%.
  • Higher inventory levels in 9M22. BAL saw a 31% QoQ decline in CPO ASPs in 3Q, bringing 9M22 ASPs to IDR12,900/kg (+46.6 YoY). We highlight that, despite 9M22 CPO output rising 12.6% YoY, CPO sales volumes were flattish at +0.8% YoY. This was due to logistics issues related to weather-damaged roads. As such, BAL’s inventory levels rose to slightly above two months’ supply from two months at end 1H22, approximately one month more than normal. Assuming the weather conditions improve, the company hopes to be able to normalise this by 4Q.
  • Unit costs moderated 26% QoQ in 3Q22 to IDR4.200/kg on lower upkeep costs during the quarter due to the wet weather. This brought 9M22 costs down to IDR4,800/kg (+7% YoY) vs IDR5,200/kg in 1H22. BAL has applied 80% of its fertiliser requirements for FY22 so far. For 4Q22, costs should rise due to higher-priced fertiliser recognised, leading to overall FY22 unit costs rising by 10-15% YoY, given the higher fertiliser prices (+60-80% YoY).
  • We tweak forecasts down for FY22-24 by 2-3%. This is after imputing the latest taxes and duties applicable in Indonesia, as well as our latest in- house FX assumptions.
  • Maintain BUY, with a relatively unchanged SGD0.80 TP based on 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 5.4x 2023F, even below -1SD from its 5-year mean. We believe this is unwarranted. Assuming the dividend payout is at the maximum 40%, FY22F’s dividend yield is also attractive, at c.13%.

Source: RHB Research - 15 Nov 2022

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