• Downgrade to NEUTRAL from Buy, unchanged SGD0.70 TP, 4% upside. 1Q24 results disappointed slightly on weaker-than-expected output. Given the share price performance of +18% over the last six months, we believe valuations are now fair. Bumitama Agri is trading at 8x FY24F P/E, ie within its peer range of 7-9x P/E. However, we do expect the strong FY24F dividend yield of 6.9% to provide share price support.

• 1Q24’s results were slightly below expectations, at 17-19% of our and Street estimates. The disappointment came mainly from lower-than- expected FFB output of -3.8% YoY (-24% QoQ) during this period vs our 3.2% growth assumption and management’s guidance of 3-5% for FY24.

• Despite the lower YoY FFB output, BAL managed to record a stronger 9.2% YoY growth in CPO output, coming from higher plasma (+16.6% YoY) and external FFB purchases (+20% YoY). This resulted in CPO sales volume rising 7% YoY in 1Q24. BAL is making no changes to its internal FFB growth target of 3-5% for FY24, expecting 2H output to recover strongly, while external FFB purchases should remain robust. To be conservative, we trim our nucleus FFB output growth assumption to 2.5% from 3.2% for FY24, but raise external FFB output to reflect 8-10% growth for FY24-26 from the prior 5%.

• CPO ASP stronger QoQ in 1Q24. BAL saw a 7% QoQ rise in CPO ASP in 1Q24 (-1% YoY) to IDR11,600/kg while PK prices rose 10% QoQ (+0.5% YoY). Management continues to sell mainly on spot.

• Unit costs rose 6% YoY in 1Q24 to IDR7,100/kg due to lower output during the quarter and higher fertilisation activities. BAL managed to apply about 25% of its fertiliser requirements in 1Q24. For FY24, it expects to apply about 20-25% more fertiliser, leading to a projected 10% YoY rise in unit cost guidance to c.IDR5,400/kg. BAL has purchased about 50% of its fertiliser requirements for FY24 so far, at prices 15% lower YoY. We raise our unit cost assumptions slightly to be in line with guidance.

• All in, we tweak our FY24F-26F earnings down by 5-10% after increasing external FFB output and raising unit cost assumptions.

• Downgrade to NEUTRAL with an unchanged TP of SGD0.70 based on a higher 9x 2024F P/E from 8x as we update the historical peer range. This includes an ESG discount of 10%, given our in-house ESG score of 2.6 vs the 3.1 country median. Given the 18.4% gain in share price over the last six months, we believe valuations are now fair, with BAL trading at 8x 2024F P/E – which is at the mid-end of its peer range of 7-9x. Its dividend yield of 6.5% for FY24F should provide share price support, however.

Source: RHB Research - 15 May 2024