Imputing higher costs
Price Target : 12-Month S$ 1.20 (Prev S$ 1.23)
•2Q13 core net profit of Rp170 bn was below our expectations of Rp201 bn-221 bn on higher costs
•COGS growth to decelerate in 2H13, but unit selling expenses may remain high
•FY13F/14F/15F earnings cut 5%/4%/6%%; DCF-based TP lowered to S$1.20 (WACC 14.4%, TG 3%)
•BUY call reiterated for 24% upside to revised TP. Expect better 2H13 earnings
2Q13 core profit below. Including dividend withholding tax of Rp15.7 bn, Bumitama’s 2Q13 core earnings came in at Rp154.7 bn (-19% y-o-y; +2% q-o-q). This brought 1H13 core profit to Rp306.2 bn (-20% y-o-y), representing 36% of our initial forecast. The weaker than expected results were attributable to a 21% q-o-q jump in COGS (which expanded by Rp114 bn q-o-q) and Rp11 bn FX losses arising from USD-denominated debts. Approximately Rp65 bn of the q-o-q increase in COGS was due to a drop in CPO inventory. The remainder was due to higher fertiliser and processing costs (due to temporary mill repair work). Revenue was in line.
Expect better 2H13 output. BAL’s CPO inventory had further dropped to 12.5k MT at end of Jun13, from c.28k MT at end Mar13, as it had sold some of its CPO on CIF basis (reflected in selling expenses). Given the recent hike in fuel prices, we understand unit selling expenses are unlikely to drop further in 2H13 from Rp164/kg booked in 2Q13. In 2Q13, FFB yield declined 7% y-o-y to 3.9 MT/ha due to dilution from increased maturity, while 2Q13 OER eased 30 bps y-o-y to 23.4% due to more outside FFB purchases. BAL guided that 2H13 output would now account for 60% of full year number. Hence, with more own FFB, OER is guided to improve to 23.7% for the full year.
FY13F/14F/15F earnings trimmed by 4-6%. We raised selling expenses to account for the recent fuel price hike, cut borrowing costs, and raised non-controlling interest expense as reflected in 2Q13 results. We also impute dividends payout of up to 20% from FY14F, based on new policy.
Maintain BUY. BAL remains our top pick in the sector for its 3-year earnings CAGR of 31% and consistent planting (expanded 3,423 ha in 2Q13 and on track to meet 13k ha target including 3,374 ha from acquisitions). Catalysts include jump in 2H13 output, CPO price recovery next year.
Publish date: 13/08/13