Towards Financial Freedom

Bumitama Agri - Still Our Top Sector Pick

kiasutrader
Publish date: Thu, 25 Sep 2014, 02:41 PM
Bumitama Agri remains as our top sector pick. We pare down our TP to SGD1.45  from  SGD1.66,  as  we  lower  our  CPO  price  assumptions  to MYR2,400  per  tonne  for  CY14  and  MYR2,500  per  tonne  for  CY15.  We believe a growth stock with  a  good proportion of prime  age trees such as  Bumitama  Agri  would  still  outperform  the  sector  in  a  low  price environment like the current one. Maintain BUY. 
Cut in CPO price assumption. We have cut our CPO price assumption for  CY14  to  MYR2,400  per  tonne  from  MYR2,700  previously. We  also pare  down  our  CY15  assumption  to  MYR2,500  from  MYR2,900 previously. As a result, our earnings forecasts for the company drops by 13.8% to IDR1,222bn for CY14 and by 10.1% to IDR1,552bn for CY15.  
Palm oil prices close to bottom. We believe palm oil prices are weeks away from a bottom and should strengthen in the 4Q as well as in CY15. That said, the current low levels could  pull down  the full-year average  - hence the cut in our assumptions.  
Still inexpensive.  Following the earnings cut, Bumitama Agri  is tradingat 14.7x CY14 and 11.6x CY15 earnings. We continue to like the stock as  we  expect  the  company  to  deliver  good  earnings  with  production coming in strongly.  
Production  growth  has  further  upside.  We  have  raised  our  nucleus FFB  production  growth  estimate  to  27%  for  CY14  from  20%.  Its production has done well this year - 1H production levels surged by 37% y-o-y,  and  we  believe  there  is  still  upside  to  its  production  growth  for CY14. Assuming 3QFY14  FFB production rises by 3% sequentially from the  372k  tonnes  achieved  in  2Q,  this  would  represent  a  49%  y-o-y growth,  bringing  9M  cumulative  production  growth  to  41%.  We  are maintaining our CY15 production growth projection at 18.5%.  
Earnings  delivery  to  remain  solid.  We  expect  Bumitama  Agri  to continue to deliver steady earnings for the rest of the year and in 2015. This is due to the rising proportion of prime age trees, which we estimate to stand at 62% of its total mature area compared with 52% in 2013.










Source: OSK-DMG
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