STI : 3,166.74
Price Target: 12-month S$1.23 (Prev S$1.26)
Growth on track
•Ex. translational FX loss of Rp19.1bn, 3Q13 core earnings of Rp187bn (+10% y-o-y; +12% q-o-q) was in line with our and consensus expectations
•Sequential earnings growth was driven by lower financing cost and taxes
•FY13F-15F earnings tweaked by 0-1%, on account of adjusted FFB yield and capitalised FX losses. TP is likewise lowered by 2% to S$1.23
•We maintain our BUY rating on 24% upside, given its volume-leverage and consistent hectarage expansion
3Q13 earnings in line. Bumitama Agri (BAL) booked core 3Q13 earnings (ex. translational FX losses) of Rp187.1bn (+10% y-o-y; +12% q-o-q) – in line with our expected range of Rp181-186bn. This brought 9M13 earnings to Rp508.7bn – representing 67% of our full-year forecast. Reported 3Q13 net profit (including translational FX losses) was Rp168.8bn (-19% y-o-y; +2% q-o-q).
Inventory increased. While 3Q13 CPO and PK outputs expanded by 7% and 7% q-o-q respectively, CPO sales volume dropped by 15%q-o-q, due to delays in shipment. This was partly offset by 6% and 11% sequential recoveries in CPO and PK ASP respectively. BAL accumulated 12k MT of additional CPO inventory during the quarter to 24.7k MT. Reflecting this, 3Q13 top line eased 8% q-o-q to Rp905.9bn. However, interest and tax expenses dropped q-o-q by 51% and 32% respectively, due to overbooking in 2Q13.
Higher net gearing. The group’s ending cash balance dropped 52% q-o-q to Rp420.6bn on lower payables, capex. Its cash conversion cycle also extended to 19 days from -18 days at the end of last quarter, due to a drop in payable days. Total borrowings jumped 16% q-o-q to Rp4,068bn at end of Sep13 (from Rp3,515bn at end of Jun13), mainly on account of the new US$150m facility secured in May13. This translated to a net debt to total equity ratio of 64.1% - up from 48.3% at the end of last quarter, given lower cash level. The group is in the process of launching a RM2bn Sukuk programme with a 5-7-year tenure (subject to regulatory approvals). However for the first tranche, BAL may employ c.RM500m.
Volume guidance lowered. The group lowered its growth guidance on FFB processed to 17% from 25%; and likewise guided its full-year FFB yield down to 18 MT/ha from 20.5 MT/ha previously. This would translate to a CPO output target of c.540k MT.
FY13F/14F/15F earnings tweaked by -0.7%/0.3%/-0.4% to Rp758.9bn/Rp1,243.6bn/Rp1,608.7bn, as we impute lower FFB yield and adjusted capitalised FX losses, but kept the tax rate at 22.8%. Likewise, our DCF-based TP is slightly lowered to S$1.23 (WACC 14.3%, Rf 8.8%, Rm 15.7%, Beta 1.1, TG 3%).
Top pick in the sector. BAL offers total potential return of 25% at its current level. Notwithstanding the counter’s relatively low liquidity, we believe the counter remains grossly undervalued, given CPO price’s favourable outlook and the group’s 3-year FFB output CAGR of 22%.
Publish date: 14/11/13