A Low Cost Producer With Good Growth

• We tweaked our earnings forecasts marginally following our industry-wide CPO ASP revision. Following our EPS revision, our new target price for Bumitama Agri is SGD0.98 (-1%) on unchanged 14x 2018 PER peg (5-year historical mean). 
• Trading at an EV of ~USD9,000/ha and just 10x FY18 PER, more than 1SD below its historical mean, Bumitama Agri remains a BUY.
• We like Bumitama Agri for its good growth prospect and low cost of production.

Raising CPO ASP Forecasts in IDR by +4-9%

Following the lower-than-expected CPO spot ASP achieved YTD (Jan-May) of MYR2,442/t in Malaysia and muted near term price outlook amidst still ample palm oil stockpile, we now cut our 2018 industry-wide CPO ASP forecast to MYR2,450/t (-6%).

We also lower 2019-20 forecasts to MYR2,500/t (-4%) and MYR2,600/t (-2%). But given the recent weakness in IDR against MYR and USD, our 2018-20 CPO ASP forecasts in Rupiah were raised to IDR8,560/kg (+4%), IDR8,735/kg (+7%), IDR9,084/kg (+9%).

Weaker IDR Has Also Raised Domestic Costs

Indonesian Rupiah has weakened against US Dollar by ~4% compared to a year ago. This has inevitably raised some cost pressures especially for fertilizer which are priced in US Dollar. 

Bumitama Agri now guides that 2018’s cash cost will increase by 5-10% y-o-y, driven by

1. higher locked-in fertilizer cost (+8-9% y-o-y) and
2. rising wage bills. 

As such, we have also reorganized our cost assumptions to reflect the new guidance.

One of the Lower Cost Producers in the Region

Following revisions to our CPO ASP and cost assumptions, our FY18-20F EPS are tweaked by -0.4%/-3.2%/+2.2% respectively.

We continue to like Bumitama Agri for its medium-term growth outlook as we project a +9% 3-year FY17-20F CAGR in FFB output, driven by its relatively young tree age profile of 8.9 years. 

Bumitama Agri is one of the lower cost producers in the region with all-in operating cost of production at e.MYR1,100/t for FY17.

Source: Maybank Kim Eng Research - 08 Jun 2018