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Drop in planting not impacting volume growth. Aggressive expansion in FY05-FY13 has kept Bumitama's (BAL) tree-age profile younger (5.5 years) relative to peers. This is forecast to deliver 14% CAGR in FFB output (including smallholder estates) over the next 3 years. BAL's operations are also efficient with gross profit/ha of c. US$1,750, to support 20% earnings CAGR in FY14-17F (second highest in our universe).
■ Prepared for El Nino. The majority of BAL's estates are located in Central Kalimantan, where rainfall patterns have been normal, unlike Sabah and North Sumatra. Furthermore, over the years, BAL has instituted a stringent water management system in an effort to minimise water deficiency during severe El Nino conditions.
■ Balance sheet can withstand downcycle. Net gearing ratio is forecast to settle at 63% by the end of this year and 55% next. The weaker Rupiah should swell BAL's Sukuk balance (swapped to USD), but this would be offset by rising output, higher ASP and lower fertiliser costs, while borrowing costs continue to remain lower-than-peers.
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