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.