BUY; a Laggard Play in Recent CPO Price Recovery

• BUMITAMA AGRI (SGX:P8Z)'s 3Q19 earnings missed our and consensus estimates on low output and prices. However, that will change in 4Q19 with the recent CPO price rally, expectations of flat q-o-q output and lower fertilising costs.
• Bumitama Agri remains a BUY for its medium-term growth prospect and offers decent dividend yields of ~3-5%. See Bumitama Agri Dividend History.
• Our Target Price is unchanged at SGD0.80 on 13x FY20 PER peg, its 5-year mean. See Bumitama Agri Share Price; Bumitama Agri Target Price.

Forget 3Q19 and Look Forward to a Better 4Q19

• Bumitama Agri's 3Q19 reported PATMI came in at IDR190b (-30% y-o-y, +52% q-o-q). Stripping off FX, core PATMI was IDR203b (-30% y-o-y, +74% q-o-q), bringing 9M19 core PATMI to IDR367b (-61% y-o-y), which met just 42%/37% of ours/consensus full-year estimates – below expectations. See Bumitama Agri Announcements.
• The relatively weak 3Q19 earnings were largely due to low CPO ASP of IDR6,421/kg (-6% y-o-y, -2% q-o-q), low PK ASP of IDR3,072/kg (-38% y-o-y. -8% q-o-q) and weaker-than-expected FFB output growth (-1% y-o-y, +13% q-o-q).
• In terms of fertiliser application, Bumitama Agri has completed ~83% of its full-year plan in 9M19 (9M18: ~60%). This means lower fertilising costs in 4Q19.

Trimming FFB Output Growth

• Bumitama Agri reckons its 4Q19 crop will likely be flattish q-o-q. FY19 FFB growth guidance was lowered to flattish vs earlier guidance of 5-8% after weaker-than-expected 9M19 output (-4% y-o-y). Hence, we cut our 2019 FFB output growth assumption to 2% (from 5%) and left our 2020-21 absolute output unchanged, implying 8%/ 3% y-o-y growth respectively.

Expect Earnings to Peak in 4Q19

• We cut our FY19E EPS by 9% as we trimmed our absolute FFB output assumption by 3%.
• Nonetheless, we look forward to a much stronger 4Q19 as CPO spot prices have rallied 23% since Oct; in addition to our expectations of higher output, and lower fertilising cost.

Source: Maybank Kim Eng Research - 12 Nov 2019