• 9M14 core PATMI above expectations.  We raise FY14E earnings mainly on higher CPO ASP achieved.

• BAL mulling higher payouts as new-planting target slows on tougher RSPO requirements.

• Maintain BUY & SGD1.38 TP, at 16x FY15E EPS, implying just 0.7x PEG. Catalysts from 21% FFB output CAGR over 2013-16, among highest in industry and potential DPS upside.

9M14 boosted by output and selling prices

Excluding IDR9b of unrealised forex-translation losses, 3Q14 core PATMI was IDR292b (+47% Yo Y, -22% QoQ). This brought 9M14 core PATMI to IDR942b (+80% YoY), forming 80% of our FY14E forecast and 78% of the market’s. The strength was led by: a) exceptional FFB nucleus output (+34% Yo Y );  and b) higher CPO ASPs  of IDR8,538/kg (+26% YoY).

Traditionally, BAL’s production is strongest in 4Q. H o w e v e r, cropping patterns could differ somewhat this year, in part due to a rain deficit in Central Kalimantan in Sep/Oct 2014. This may delay some FFB ripening into 1Q15. 2014 new-planting target has also been lowered to 3-4k ha from 3-5k ha, as it only managed to plant ~1.9k ha in 9M14.

Potential DPS upside; BUY

We expect 4Q14’s FFB nucleus growth to be a low 5% YoY (+10% QoQ). This is in line with guidance of a 50:50 1H:2H output ratio for 2014 (historically 40:60). Hence, we are keeping our 25% FFB output growth forecast for 2014. We continue to like its young trees of six years on average, which should sustain an FFB output CAGR of 21% over 2013-16. We also like BAL’s plantable reserves of c.38k ha  and low costs  of production.  What’s more, as new planting slows in accordance with  RSPO stringency, BAL could rewards investors with higher dividends in the near term. The stock now trades at 1SD below its historical mean of 14.9x; BUY.

Source: Maybank Kim Eng Research - 13 Nov 2014