-  Uninspiring  1H  numbers.  Bumitama's core 1H earnings continued to drop  20%  against  last  year,  a  quantum  roughly  unchanged  from  its  1Q figures. This was due to the flat 2Q production - had it been stronger, it could  have  pushed  earnings  up  q-o-q.  Its  1H  core  earnings  made  up 42.8% of our full-year forecast, which we deem in line as we believe the seasonally stronger 2H production will make up the balance. Bumitama's 1H numbers were akin to those of Astra Agro Lestari (AALI IJ; BUY, FV: IDR19,940), whose core earnings made up 42% of our full-year forecast.   

- Newly mature area a drag. On top of weak 2Q production, Bumitama's newly mature area increased by 12,145 ha during 1H. As newly mature area tends to be loss-making at the current crude palm oil (CPO) price, this led to a drag on its profitability. Nevertheless, we believe the 12,145 ha have made up the bulk of Bumitama's newly mature area for this year and there will be little newly mature area  to be added in 2H. We expect the company's profitability to strengthen during the year, as its trees get increasingly prime.  

- Fertiliser  price  adjustment.  Given  the  potash  cartel  breakup,  there  is room  for  lower  fertiliser  cost  assumption.  Currently,  we  are  assuming  a 15% increase in fertiliser cost per ha. In reality, 2014 fertiliser cost could be  some  15%  lower.  If  we  make  this  adjustment,  our  FV  will  rise  to SGD1.25.   

- Risks.  Main  risks  to  our  BUY  call  are  slower-than-expected  production growth and weaker-than-expected CPO prices, both of which appear on track at this point in time. 

Source: OSK