• Bumitama Agri (SGX:P8Z)'s FY19 core earnings were in line with our expectations, coming in at 103% of our FY19 forecast – but below consensus, at 77%.
• FY20 should be a better year overall, with improved FFB output and higher CPO prices.

FFB Growth for FY19 Fell 2% Y-o-y

• FFB growth for FY19 fell 2% y-o-y, below management’s 2019 growth guidance of flat output. Unit costs rose 15% y-o-y in FY19 due to lower FFB output and a correction in fertiliser mix in 2H20, where Bumitama Agri added additional magnesium to its fertiliser application, causing costs to rise.
• Bumitama Agri’s average CPO price fell 4.7% y-o-y to IDR6,696kg, while PK prices dropped by a larger 35.4% y-o-y to IDR3,416/kg.

Briefing Highlights

• Bumitama Agri is guiding for up to 10% FFB growth for FY20, coming from 4,000ha of new areas coming into maturity and weather normalisation. Weather at its estates in Kalimantan have normalised since mid-Nov 2019, and management is guiding for an FY20 45:55 FFB output ratio in 1H:2H. We have reduced our FFB growth projections slightly for FY20-22 to 8-10% from 9-11% previously;
• 4Q19 unit cost of IDR4,022/kg was 1.8% higher q-o-q and 4.5% higher y-o-y due to higher fertiliser application – this brought FY19 unit costs to a 15% y-o-y increase. Management is now guiding for FY20 unit costs to rise 5% y-o-y – coming from an 8.5% y-o-y rise in wages, 3.5% inflation increase, and 14% rise in fertiliser prices. We have already conservatively imputed a 5-10% yearly increase in costs for FY20-22;
• Management does not do any forward selling currently, and has set its CPO price budget at MYR2,600 for 2020. The collection of a USD50.00/tonne levy has started, and refiners have already started to pass down the tax impact to the upstream planters.

We Maintain Our BUY Call

• We trim our FY20F-21F earnings by 6-8%, after imputing the higher unit costs achieved in FY19. We also introduce FY22 earnings. We maintain our target P/E of 18x 2020F, which is 1SD above its historical average. Our Target Price of S$0.85 implies an EV/ha of USD13,000 – at the mid end of the peer range of USD10,000-15,000/ha.
• With FFB output recovery being seen at its estates and higher CPO prices, as a pure upstream company, Bumitama Agri will continue to benefit, in our view. We estimate that every MYR100.00/tonne change in CPO prices affects its earnings by 8-10% pa.

Source: RHB Invest Research - 19 Feb 2020