Share Price S$0.95
Target Price S$1.23
2Q13: Expect A Stronger Performance In 2H13
BAL reported a net profit of Rp155b for 2Q13 and Rp306b for 1H13. 1H13 profit was 40% of full-year expectation, in line with an expected stronger 2H13 due to higher production and slightly lower costs. CPO sales were higher qoq despite lower FFB production in 2Q13 on higher third-party fruits processed by its mills. More update after today’s briefing. Maintain BUY. Target price: S$1.23.
• In line with expectation. Bumitama Agri (BAL) reported 2Q13 net profit of Rp155b or adjusted net profit of Rp170b, bringing 1H13 net profit to Rp306.2b or adjusted net profit of Rp322b. The adjusted earnings mainly exclude the one-off items, ie withholding tax on interim dividend in 6M13 and gain on hedging in 6M12.
• Stronger 2H13 to meet our expectation. Although 1H13 made up 40% of our earnings expectation, results were in line with expectation as we expect stronger production pick-up in 2H13 to meet our expectation of fresh fruit bunches (FFB) production growth of 29% from its nucleus areas.
• This is the best results among plantation companies with no negative surprises and strong yoy production growth.
• Higher costs in 2Q13 due to higher volume of FFB purchased (+15.5% qoq, +26.5% yoy), fertiliser dosage on larger mature areas, higher employee costs, and repair and maintenance costs. Higher cost reduces the EBITDA margin for 2Q13 to 30.2% for 2Q13 down from 31.3% for 1Q13 and 32.6% for 2Q12. EBITDA margin should be better in 2H13 on higher nucleus and plasma production. Cost usually would be slightly lower in 2H as bulk of the fertiliser application was done in 1H.
• Sales volume was higher in 2Q13 dampening the impact from the inventory drawdown in 1Q13. BAL’s reported much stronger CPO sales volume on the back of higher third-party FFB processed at their two new mills.
• Higher losses from associates. Share of loss of associated companies of Rp3.6b (+7.3% qoq) for 2Q13 and Rp6b in 1H13 was due to share of losses from the associated companies namely, PT Sawit Nabati Agro and PT Berkat Agro Sawitindo as both companies are young oil palm plantations whose yields are low.
• Stronger 2H13. Earnings performance to pick up in 2H13 to meet expectation. Main support comes from the stronger FFB production growth and continued high purchase of third-party FFB to maximise the utilisation of mills. 2Q13 reported a slight drop in FFB growth of 0.6% qoq but up 14% yoy. The lower production is due mainly to weaker plasma contribution. This still outperformed its peers, which reported larger contraction in FFB production on both a qoq and yoy basis. The outperformance was supported by its young age profile (average age of 5.4 years old) and the large newly mature areas (+24% in 1H13 vs Dec 12).
• High OER to maintain. Oil extraction rate (OER) remained high at 23.4% despite higher intake of third-party FFB (28% of total fruits processed). This continued to be the key indicator to show BAL’s efficiency and good estate practices. On-time harvesting and on-time delivery to mills are crucial to ensuring continued high OER. • We will have more updates after the analyst briefing today.
• No change to our earnings forecasts. We are expecting net profit of Rp823b, Rp1,017b, and Rp1,084b for 2013, 2014 and 2015 respectively.
• Maintain BUY and target price of S$1.23, based on 14x 2014F PE. We like BAL for its young age profile and best OER to support its 5-year net profit CAGR of 37%.
Share Price Catalyst
• Surge in CPO prices. BAL is highly leveraged to CPO prices. A surge in CPO prices would boost its earnings.
• M&A. Embarking on value-accretive acquisitions to expand its upstream operations.
Publish date: 13/08/13