4Q19: Missed Earnings Estimates

• Bumitama Agri (SGX:P8Z)'s 4Q19 profits missed our and market estimates on lower-than-expected output and CPO ASP, and one-off expenses. We cut our FY20-21 EPS to factor in higher costs.
• Bumitama Agri remains a BUY with Target Price SGD0.78 for its medium-term prospect and decent dividend yields of ~3-5%.

4Q Hurt by Lumpy Expenses and Low CPO ASP

• 4Q19 reported PATMI of IDR262b (+26% y-o-y, +38% q-o-q) would have been higher had it not been for the IDR29b one-off expenses related to the sales of its 28%-associate investment, and a IDR40b withholding tax on dividend income from its subsidiary.
• Stripping off FX gains and Fair Value gain on biological assets, 4Q19 core PATMI was IDR185b (-19% y-o-y, -9% q-o-q), bringing 2019 core PATMI to IDR552b (-53% y-o-y), which met just 69%/56% of ours/consensus estimates.
• Operationally, the relatively weak 4Q19 earnings were due to lower-than-expected CPO ASP of IDR7,156/kg (+18% y-o-y, +11% q-o-q), low PK ASP of IDR3,243/kg (-26% y-o-y. +6% q-o-q), and weaker-than-expected FFB output growth (+4% y-o-y, -8% q-o-q).

Up to 10% FFB Growth for FY20

• For FY19, we estimate Bumitama Agri’s all-in operating cost of production at Rp4.53m/t (+35% y-o-y) or MYR1,328/t. Besides rising wages and fertilizer costs, the sharp increase in cost (per tonne) was also due to
  1. lower-than-expected CPO yield (-4% y-o-y), hurt by the dry weather in 3Q19, and
  2. low PK prices (-35% y-o-y).
• There were also increased logistics costs as Bumitama Agri is increasingly selling more on CIF basis. As trees have unexpectedly rested in FY19 (-2% y-o-y in FFB output), Bumitama Agri is guiding for up to 10% FFB output growth in FY20 given its relatively young trees of 10.6yrs old, and cash cost per tonne to go up between 0-5% y-o-y.

Re-adjusting Our Assumptions

• Following the higher-than-expected costs in FY19, we revised up our cost assumptions, trimmed our FY20 output by 2% (implying a 10% y-o-y growth), and lowered our FY20-21 EPS by 18%/9% respectively.
• We take the opportunity to introduce our FY22 EPS.

Source: Maybank Kim Eng Research - 18 Feb 2020