• We maintain our NEUTRAL recommendation on BUMITAMA AGRI LTD. (SGX:P8Z) with higher Target Price of SGD0.67 from SGD0.60, 0% upside.
• FY18 core earnings were in line, coming in at 101-103% of our and consensus’ 2018 forecasts. We believe valuations are fair at the current juncture, at 11x 2019 P/E, which is in line with its historical average of 11-12x. CPO prices will remain the key catalyst for this pure upstream player, although Bumitama Agri is somewhat better off than its peers, given its strong double-digit FFB growth.
• 4Q18 FFB output grew 29.5% y-o-y on 2,539ha of newly-matured land. In FY18, FFB growth was at 27% y-o-y – this is within management’s 2018 growth guidance of 25-30%, but above our projection of 21%. Its average CPO price fell 13.2% y-o-y to IDR7,029/kg.

Briefing Highlights

• Bumitama Agri expects FFB output to grow at 10-15% in 2019, on 8,000ha of new area coming into maturity. This is in line with our projections of 12% FFB growth for FY19. The weather continues to be conducive at its estates, with no major dryness experienced anywhere. In terms of production split, management expects 1H:2H production to come in at 45%:55% vs 48%:52% in 2018.
• Shortage of barges in Kalimantan has been resolved, with the Government fixing biodiesel collecting and blending stations at 20 locations around the country. Bumitama Agri managed to sell off all the extra inventory it was holding in 4Q18, resulting in CPO sales volume rising 57% y-o-y vs the production volume rise of 23% in 4Q18.
• FY18 unit cost of IDR3,796/kg was 10% lower y-o-y. This was due to less fertiliser being applied during the period (90% of 2018’s provision) and higher FFB yield. Going into 2019, management expects unit costs to remain flattish, despite higher fertiliser prices (+10% y-o-y) and higher minimum wages (+8% y-o-y), due to continued improvement in age profile and yields.
• We tweak our forecasts up slightly by 5-9% for FY19-20, post the update of 2018’s results and we introduce our FY21 forecasts.

Still NEUTRAL.

• Our Target Price is raised slightly to SGD0.67 from SGD0.60, based on target 2019 P/E of 11x – in line with its peers and within its historical average P/E band of 10-13x. This implies EV/ha of USD11,000 – at the low end of its peers’ USD10,000-15,000/ha range.
• Key risks include the weather, as well as supply and demand dynamics of edible oils.

Source: RHB Invest Research - 26 Feb 2019