Sunday, November 17, 2013

Bumitama Agri 3Q13: Weaker-than-expected FFB Production

Bumitama Agri
Share Price S$0.99
Target Price S$1.23

Results were below expectation on weaker-than-expected FFB production. FFB production growth was below our expectation despite entering into high production season mainly due to dry weather impact back in 2011. Its FFB production is likely to miss our expectation. However, we are maintaining our earnings forecast pending an analyst briefing on 14 Nov 13. Maintain BUY. Target price: S$1.23.


Results
• Results below expectation. Bumitama Agri (BAL) reported 3Q13 net profit of Rp169b, bringing 9M13 net profit to Rp475b. However, excluding the one-off items, ie withholding tax on interim dividend in 9M13 and gain on hedging in 9M13, its adjusted 9M13 net profit would have been Rp490b.

• Its 3Q13 results were below expectation mainly due to weaker-thanexpected FFB production. 3Q13 nucleus FFB production only grew by 3.1% qoq (+3.7% yoy) despite entering into the high production season. This was mainly due to the low rainfall back in 2011.

• Potential build-up of inventory. Despite a 7.1% qoq increase in CPO production in 3Q13, its CPO sales volume was down by 15.3% qoq (+8.4% yoy). This might indicate some inventory build-up in the quarter similar to recent reporting by other plantation companies in Indonesia. • Interest cost was down substantially. Interest cost was down by 51% qoq (-47% yoy) in 3Q13 and down by 43% yoy for 9M13. The lower interest cost was mainly due to lower average interest rates on borrowing during the period. This was attributed to its timely debt restructuring reducing exposure to Indonesia’s rate hike.

• Despite higher production in 3Q13, BAL reported lower operating cost on lower fertiliser cost whereby 60% of the fertiliser application was completed in 1H13.

Stock Impact
• Unlikely to meet our production expectation... BAL reported nucleus FFB production growth of 17.9% ytd to 754,162 tonnes for 9M13. This is below our expectation of 28-30% yoy growth for 2013. The FFB production in 3Q13 was impacted by the dry weather back in 2011 in Central Kalimantan where bulk of BAL’s estate is located and a delay in fruit formation. However, we are maintaining our production forecast pending further guidance from management.

• … but still expecting better production in 4Q13. Based on historical trends, BAL is likely to have the highest FFB production in 4Q13. This is mainly supported by its young age profile. For the past two years, FFB production in 4Q grew about 20-25% qoq. Based on ground checks, production has picked up in Oct and Nov 13 in Central Kalimantan, where BAL’s estates are located. With the pick up, BAL might still be able to deliver about 20-22% of production growth. If we adjust the production growth to 20%, BAL’s 2013 earnings forecast will be adjusted down by 9% to an EPS of Rp426.

• OER remains the best among peers. Despite a marginal decrease in oil extraction rate (OER) to 23.3% in 9M13 from 23.7% last year, its OER remained the best among its peers. The decline in OER was mainly due to higher intake of external crop. In 9M13, external fruit intake increased by 30.7% yoy. FFB yield for 9M13 dropped 6.3% yoy due mainly to the dilution from the newly mature areas.

• High external fruit intake to maximise utilisation of mills. BAL has two new mills that start in the quarter. Therefore, higher external fruit intakes were recorded, up about 33.3% qoq, to maximise the utilisation rate. This has also boosted the CPO production in the quarter. However, management highlights that the third-party purchases will fall going forward as more of its oil palm trees reach their prime age, which will enable BAL to meet its milling capacity.

• Potential to exceed new planting target. BAL has a new planting target of 13,000 ha for 2013, including the 3,227ha additional planted area from completion of NKU acquisition. In 9M13, it planted about 8,974ha, which brought the total additional area to 12,201ha, including the newly-acquired plantation. It is likely to exceed its new planting target for 2013.

Earnings Revision/Risk
• We are maintaining our earnings forecasts for now, pending the analyst briefing on 14 Nov 13.

Valuation/Recommendation
• 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 32%.

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.



Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 14/11/13

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