Tuesday, November 19, 2013

Bumitama Agri: Growth on track (DBSV)

Bumitama Agri:
BUY S$0.99
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

Highlights
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.

Our View
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%).

Recommendation
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%.


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

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