• Maintain NEUTRAL with a higher SGD0.43 Target Price from SGD0.38, 2% downside and 3% yield.
• Bumitama Agri’s 1Q20 results were above expectations, coming from lower unit costs and higher CPO prices. Management expects FFB output to remain weak in 2Q20, before recovering in 2H20.
• Valuations are fair at current levels.

Bumitama Agri Has Opted Not to Continue With Quarterly Results Reporting

• Bumitama Agri (SGX:P8Z) has opted not to continue with quarterly results reporting, releasing financial reports on a semi-annual basis only. It will now release certain financial numbers and operational statistics. As such, we are unable to ascertain core net profit figures for 1Q20.
• Based on net profit figures, earnings for this period are above expectations, comprising 35-43% of our and consensus FY20 forecasts. This comes from higher 1Q20 CPO prices achieved and lower unit costs (estimate: 6% down q-o-q), but offset by lower-than-expected FFB output.

Stronger Earnings Came on Higher ASPs

• Bumitama Agri's 1Q20 FFB output grew 0.3% y-o-y, while CPO prices rose 33% y-o-y. This was below management’s guidance of up to 10% growth for FY20.

Bumitama Agri's Briefing Highlights

Bumitama Agri is maintaining its FFB current growth projections of up to 10% for FY20.

• 1Q was affected by 3Q19’s dry weather, which has also continued to affect 2Q’s productivity. Management is hoping for significant improvements in FFB output in 2H20.
• In FY20, Bumitama Agri is targeting to plant up to 1,000ha of land, while 4,000ha are expected to come into maturity. We revise our FY20 FFB growth assumptions to 4% from 8%, but retain our 8-9% growth assumptions for FY21-22.

Bumitama Agri did not disclose its 1Q20 cash cost,

• only stating that it expects costs to remain within its guidance of flat to 5% growth y-o-y. As it acquired its fertiliser requirements for 2020 at end 2019, Bumitama Agri was not affected by the IDR’s 18% q-o-q depreciation for its import costs.
• As we had earlier projected FY20 cash costs to rise 10-15% y-o-y, we reduce our cash cost projections to reflect a 5-10% increase instead.

Management expects the Indonesian Government to continue with the B30 biodiesel mandate in 2020,

• although moving on to B40 and B50 may be postponed. Discussions remain ongoing on a potential pricing formula change or an additional collection of export levies for the biodiesel fund, but nothing has been confirmed yet.

Maintain NEUTRAL

• Post adjustment for lower FFB growth and unit costs, we raise our Bumitama Agri's FY20F-21F earnings 5-14%. We up our Target Price to SGD0.43 with an unchanged 12x 2020F P/E, in line with Bumitama Agri’s peers.
• We believe valuations are fair, as the stock is currently trading in line with historical averages.

Source: RHB Invest Research - 13 May 2020