Expect stronger 2H13. 1Q is traditionally the weakest quarter in terms of FFB output. Coupled with low CPO ASP achieved, BAL’s 1Q13 core net profit of IDR152m (-20% QoQ, -20% YoY) met 18% and 16% of our and consensus estimates – within our expectations but slightly below street estimates. We expect stronger performance in 2H13 on seasonally stronger production and higher CPO ASP to drive earnings growth for 2013. Maintain BUY with unchanged TP of SGD1.24 TP on 16x FY14 PER, with implied 0.9x PEG.

Decent 1Q results. 1Q results were off to a slow start on (i) low CPO and PK ASP achieved at IDR6,493/kg (+4% QoQ, -14% YoY) and IDR2,564/kg (+2% QoQ, -31% YoY), (ii) low FFB production (22% of our FY13 forecast), (iii) higher selling expenses of IDR27m (+24% QoQ, +89% YoY) on higher transport cost due to shortage of double-hull vessels in the market, (iv) lower milling margins at 21% (-7.2-ppts QoQ, -5.7-ppts YoY), and (v) 9,954 ha of estates (+19% YoY) that entered into maturity with lower oil yield per ha, but mitigated by (v) lower net interest expenses at IDR5m (-86% QoQ, -83% YoY).

On track for strong FFB output growth in 2013. While still early into the year, BAL’s 1Q13 FFB (nucleus) production growth was strongerthan- expected at 34% YoY (+3% QoQ) against our 2013’s growth forecast of 21%. Its strong production growth will help mitigate the present low CPO ASP. For 1Q13, BAL has increased its total planted area by 2,126 ha (~95% nucleus) to 135,493 ha and maintains its 15,000 ha of new planting target for 2013.

Maintain BUY. We like BAL’s defensiveness amidst weak CPO price, driven by its robust growth (3-year forward FFB output CAGR of 21%), young trees with weighted average age of 5.5-years (as at 31 Mar 2013) and low cost structure. Its manageable net gearing of 43% (as at end-Mar 2013) will help sustain its growth momentum. Even without any new planting, we forecast that BAL will post an FY12-15 net profit CAGR of 18%.

Source: Maybank Kim Eng Research - 14 May 2013