Growth remains intact. BAL’s 2Q13 core net profit of IDR155m (+2% QoQ, -19% YoY) met 18% of our and consensus full-year estimates – within our and consensus expectations. We maintain our FY13 earnings forecast in anticipation of higher FFB output, higher CPO ASP and relatively lower plantation costs in 2H13. Maintain BUY with an unchanged TP of SGD1.24 on 16x FY14 PER, with implies 0.9x PEG.

A decent quarter. BAL posted a decent 2Q results on higher CPO and PK ASP achieved at IDR6,774/kg (+4% QoQ, -16% YoY) and IDR2,834/kg (+11% QoQ, -23% YoY) respectively, amidst a flattish QoQ FFB (nucleus) production of 249,251MT (+1%QoQ) which met 22% of our FY13 forecast. We estimate its milling margins recovered in 2Q to IDR952/kg of FFB (+28% QoQ, +297% YoY). During the quarter, lower G&A expenses of IDR26m (-61% QoQ, -22% YoY) due to the absence of bonus payments, offsets higher manuring costs and higher net interest expenses of IDR14m (+210% QoQ, -40% YoY).

On track for 2013’s FFB growth of 20%. For 1H13, BAL posted a strong a 27% YoY FFB (nucleus) production growth, on track to meet our 20% growth forecast for 2013. Its 1H13 production met 44% of our full year production forecast; similar to 2012’s trend. We anticipate a stronger 2H13 FFB production, in part boosted by 9,954 ha of new area (+19% YoY) that entered maturity in 2013. A strong production growth will help mitigate the present low CPO ASP. For 1H13, BAL achieved 5,549 ha of new planting to bring total planted area to 142,290 ha (as at 30 June 2013, of which 109,585 ha are nucleus areas).

Maintain BUY. We like BAL for its robust growth (3-year forward FFB output CAGR of 21% even without any new planting), young trees with weighted average age of 5.5-years (as at 31 Mar 2013) and low cost structure. Its manageable net gearing of 48% (as at end-June 2013) will help sustain its growth momentum. Key risk to our earnings forecasts is CPO price movement. For every MYR100/t shortfall to our CPO ASP base case of MYR2,500/t, BAL’s FY13 net profit will be 6.5% lower.

Source: Maybank Kim Eng Research - 13 Aug 2013