Towards Financial Freedom
Bumitama Agri - A Bargain Growth Stock
We initiate coverage on Bumitama Agri (BAL) with a Buy call and SGD1.16 TP. BAL is one of the few large scale plantation company in our coverage which we project will sustain its profitability this year despite the lower average CPO price, courtesy of its surging production and increasing percentage of prime mature areas.
- Prime age trees drive earnings. We estimate that as at end-2012, 55% of BAL's trees were under the prime age category, compared with 50% at end-2011. As yield drag is lower for prime age trees compared with young mature ones, the company may see a surge in profitability, assuming prices remain unchanged. This is very positive for BAL's profits as it will boost its earnings this year despite weaker prices.
- Strong growth. After last year's torrid 39.8% growth pace, we expect BAL's nucleus fresh fruit bunches (FFB) production to grow at a slower but still very strong 25.1%. The company will have 7,515 ha from its 2009 planting maturing this year, which will lead to minimal drag on earnings.
- Hitting the peak in 2020. We expect BAL's nucleus FFB production to peak in year 2020 at 2.301m tonnes based on its existing planted area, up from the 0.949m tonnes achieved in 2012.
- Good profitability despite young trees. BAL achieved commendable profit per mature hectare of USD2.5k last year, which was significantly lower than best of class companies such as First Resources (FR; Buy, FV: SGD2.47), with profit per mature ha of USD3.6k. However, it is worth noting that BAL's trees are younger and will grow at a faster rate than FR's. The gap in profitability per mature ha should narrow as its tree age profile improves.
- Earnings. We expect BAL to clock in net profit of IDR749.5bn this year, based on average crude palm oil (CPO) price assumption of MYR2,400, and hit IDR1,003.0bn in CY14, assuming a CPO price of MYR2,600. Even if the average CPO price stays flat at MYR2,400 in CY14, the company's net profit will still go up by 22.3% to IDR916.5bn.
Source: OSK
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