• Maintain NEUTRAL and SGD0.70 TP, 3% downside. Bumitama Agri’s 2Q24 results met our expectations but slightly missed the Street estimate. The stock is trading at 8.3x FY25F P/E, ie within its peer range of 6-11x P/E, while its handsome FY25F dividend yield of c.6% continues to provide strong support for its share price.

• 2Q24 core profit surged 41% QoQ but dropped 31% YoY, bringing 1H24 core profit IDR921bn (-9.2% YoY). This is largely in line with our forecast (at 52% of FY24 estimate), but missed the Street estimates (at 44% of the full- year estimate). The drop in 2Q24 profit was mainly due to lower-than- expected FFB output but cushioned by the increase in CPO and PK ASPs (+4.4% and +21.5% YoY). Management declared an interim DPS of SGD1.2 sen, which is in line with expectations.

• 2Q24 nucleus FFB production ticked up by 1.2% QoQ but plunged by 25.7% YoY, taking 1H24 FFB nucleus output growth to 16.2% YoY. This is lower than our 2.5% growth assumption and management’s initial guidance of 3-5% YoY for FY24. Weather conditions are not a main concern at this juncture, and BAL expects its output to pick up in 4Q24. However, management has trimmed its internal output (FFB nucleus + plasma) growth forecast to around -5% YoY, as a result of the lower-than-expected decrease. We also pare down our FY24F FFB nucleus output growth to -7.1% YoY (from +2.5% YoY), and to +0.1 and +0.9% (from +4 and +5%) for FY25-26F. We also decrease our YoY FFB plasma growth assumptions for FY24-26 to +0.5%, +5.4% and -3.1% from +10%, 8% and 0%, to be in line with its guidance.

• CPO ASP strengthened QoQ in 2Q24. BAL saw a 5.5% QoQ rise in its CPO ASP in 2Q24 (+4.4% YoY) to IDR12,257/kg, while the PK price rose 21% QoQ (+21.5% YoY). Management continues to sell mainly on spot.

• Unit costs fell 34% QoQ but rose +10% YoY, due to higher output during the quarter and higher fertilisation activities. BAL managed to apply about 50% of its fertiliser requirements in 2Q24, and has fully secured FY24 fertiliser requirements at prices that are lower 20-25% YoY. Management has also guided for its cost of production to gradually subside, as production improves on top of better margins. We decrease our unit cost assumptions accordingly.

• All in, we tweak our FY24F-26F earnings downwards by 4%, 2% and 4% after lowering FFB nucleus, plasma and decreasing unit cost assumptions.

• Keep NEUTRAL and SGD0.70 TP, which is based on 9x 2025F P/E. Our TP includes an ESG discount of 10%, given our in-house ESG score of 2.6 vs the 3.1 country median. Valuations are now fair – this counter is trading at 8.3x 2025F P/E, which is near the mid-point of its peer range of 6-11x P/Es. Its dividend yield of c.6% for FY25F should provide support for its share price.

Source: RHB Research - 15 Aug 2024