STI : 3,211.75
Price Target : 12-Month S$ 1.26 (Prev S$ 1.20)
More attractive now
• FY13F/14F/15F earnings revised by -5%/+4%/+9% on weaker Rupiah and changes in CPO prices
• Rising maturity, CPO yields, weak Rupiah offset prospective jump in labour costs
• Bumitama (BAL) remains on target for 13k ha p.a. expansion through end FY14F
• Most undervalued counter in our universe. Reiterating BUY call for 29% upside
More earnings upside next year. Next year’s strong volume growth, higher ASP (thanks to weak Rupiah) would be partly offset prospective jump in minimum wage. BAL is one of only a few counters with positive earnings growth this year; and we expect 29% earnings CAGR between FY12 and FY15F. Reduction in FY13F earnings is due to higher USD borrowing costs in Rupiah terms.
Improving metrics. BAL’s CPO yield/ha is set to rise from 4.3 MT this year to 4.5 MT next year; and 4.6 MT in FY16F; as weighted average age of oil palm trees in its own estates moves from 4.9 years this year to 6.0 years in FY16F. With mature area expanding, yield dilution from new maturity dissipates. The group should hence see its CPO output rising by 13% CAGR between FY12 and FY15F.
Delivering growth. This year BAL had completed the acquisition of Nabatindo Karya Utama (NKU), which added 5,234 ha to its total land bank, excluding 5,766 ha of forestry area. We expect the group to complete its acquisition of Gunajaya Harapan Lestari (GHL) next year, which should add another 3k ha to its total land bank.
Meanwhile, we maintain expansion target of 11k ha for own estates this and next year; and 2k ha for smallholder estates this and next year.
Our top pick for the sector. Post earnings revisions, we raised BAL’s estimated value to S$1.26 (based on DCF: WACC 14.3%, TG 3%); as weaker Rupiah works to improve the group’s margins. Based on our revised TP, the stock offers 29% upside; excluding dividend yields (based on 20% payout, starting in FY15F). We continue to like BAL’s upstream model. We believe continued expansion should benefit BAL as a growing producer of CPO.
Publish date: 26/09/13