Results Review, 13 August 2013

Bumitama Agri (BAL SP)

Buy (Maintained)

Consumer Non-cyclical - Agriculture Market Cap: USD1,327m

Target Price: Price:

SGD1.16 SGD0.95 Macro Risks

Playing Catch Up In 2H

Growth Value

Bumitama Agri (BAL SP) Price Close

Relative to Straits Times Index (RHS)

1.20

110

1.15

106

1.10

101

1.05

97

1.00

93

0.95

88

0.90

84

0.85

79

0.80 14

75



Uninspiring 1H numbers. Bumitama’s core 1H earnings continued to drop 20% against last year, a quantum roughly unchanged from its 1Q figures. This was due to the flat 2Q production – had it been stronger, it could have pushed earnings up q-o-q. Its 1H core earnings made up 42.8% of our full-year forecast, which we deem in line as we believe the seasonally stronger 2H production will make up the balance. Bumitama’s 1H numbers were akin to those of Astra Agro Lestari (AALI IJ; BUY, FV: IDR19,940), whose core earnings made up 42% of our full-year forecast.



Newly mature area a drag. On top of weak 2Q production, Bumitama’s newly mature area increased by 12,145 ha during 1H. As newly mature area tends to be loss-making at the current crude palm oil (CPO) price, this led to a drag on its profitability. Nevertheless, we believe the 12,145 ha have made up the bulk of Bumitama’s newly mature area for this year and there will be little newly mature area to be added in 2H. We expect the company’s profitability to strengthen during the year, as its trees get increasingly prime.

10

4

Jun-13

Apr-13

Feb-13

Dec-12

Oct-12

2 Aug-12

Vol m

6

Source: Bloomberg

Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Shareholders (%) Hariyanto Family IOI Corp

0.71m/0.56m 28.4 22.5 0.91 - 1.14 19

50.9 30.4





Fertiliser price adjustment. Given the potash cartel breakup, there is room for lower fertiliser cost assumption. Currently, we are assuming a 15% increase in fertiliser cost per ha. In reality, 2014 fertiliser cost could be some 15% lower. If we make this adjustment, our FV will rise to SGD1.25. Risks. Main risks to our BUY call are slower-than-expected production growth and weaker-than-expected CPO prices, both of which appear on track at this point in time.

Shariah compliant Forecasts and Valuations

Dec-10

Dec-11

Dec-12

Dec-13F

Dec-14F

1,961

2,805

3,526

3,661

4,401

Reported net profit (IDRbn)

838

705

777

749

1,003

Recurring net profit (IDRbn)

217

571

697

749

1,003

38.0

163.0

22.0

7.6

33.8

33,928

89,246

790

426

571

0.2

0.1

9.8

18.2

13.6

Return on average equity (%)

53.0

30.1

20.5

14.2

16.3

P/B (x)

0.02

0.02

2.79

2.41

2.05

0.1

11.6

14.3

10.9

0.1

0.0

5.3

10.2

7.9

85.0

69.8

32.1

31.5

27.5

(16.7)

(13.6)

Total turnover (IDRbn)

Recurring net profit growth (%) Core EPS (IDR)

Alvin Tai, CFA +603 9207 7628 [email protected]

Core P/E (x)

P/CF (x) EV/EBITDA (x) Net debt to equity (%) Our vs consensus EPS (%)

na

Source: Company data, RHB estimates

See important disclosures at the end of this report

  1  . 2 0 . 3

0 0 . 2 0 0 Bumitama’s 1H core earnings were uninspiring, due to flat q-o-q . 0 production. Nevertheless, we believe it is still on track to hit our 0 earnings forecast of IDR749.5bn. We believe there is room for upward 0 revision in our FY14 earnings forecast on lower fertiliser prices next year. Bumitama remains one of our favourite plantation growth stocks, with strong double-digit production growth going forward.

12 8

   

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1

Bumitama Agri (BAL SP) 13 August 2013

Figure 1: 2Q Results Table FYE Dec

2Q13

1Q13

% chg

FY13

FY12

Revenue

984.6

854.3

15.2%

1838.9

1683.3

9.2%

EBITDA

275.2

266.4

3.3%

541.5

667.0

-18.8%

Depreciation

-26.2

-26.3

-0.1%

-52.5

-40.3

30.1%

Net interest expense

-14.3

-4.6

210.4%

-18.9

-50.9

-62.8%

Associates PBT before EI

% chg Comments

-3.6

-2.0

nm

-5.6

0.0

nm

231.0

233.5

-1.1%

464.5

575.8

-19.3%

EI

-11.2

-3.4

232.5%

-14.6

-22.1

nm

PBT

242.2

236.9

2.3%

479.1

553.7

-13.5%

Tax

-61.5

-57.9

nm

-119.5

-128.4

-7.0%

MI

-25.9

-27.4

nm

-53.4

-44.7

nm

Reported Net Profit

154.7

151.5

2.1%

306.2

380.6

-19.5%

Core Net Profit

166.0

154.9

7.2%

320.8

402.7

-20.3% Annualised core earnings were 14.3% below our forecast, 26.2% below street

Core EPS

94.44

88.12

7.2%

182.6

229.11

-

-

-

-

27.9%

31.2%

29.4%

39.6%

3117

3065

3117

2688

Gross DPS EBITDA margin NTA/share

-20.3%

Source: Company data

Figure 2: Operational statistics (tonnes) FYE Dec

2Q13

1Q13

% chg

FY13

FY12

FFB Production (nucleus)

249,251

247,844

0.6%

497,095

391,725

26.9% Slow seasonal uptick. Still on track to hit 25% growth

CPO Production

118,628

116,971

1.4%

235,599

191,798

22.8%

3.9

4.1

-4.9%

8.0

7.9

1.3%

23.4%

24.0%

-2.5%

23.7%

24.1%

-1.7%

4.5%

4.5%

0.0%

5.5%

4.7%

17.0%

0.9

1.0

-7.3%

1.9

1.9

-0.4%

135,500

125,142

8.3%

260,642

197,238

32.1%

23,512

23,675

-0.7%

47,187

39,787

18.6%

CPO

6,774

6,493

4.3%

6,639

7,785

PK

2,834

2,564

10.5%

2,699

3,717

FFB Yield (tonne/ha) OER PKER CPO Yield (tonne/ha)

% chg Comments

Sales Volume CPO PK Average selling prices (IDR/kg) -14.7% Realised price YTD is in line with our assumption of IDR6,660 -27.4%

Source: Company data

Figure 3: Key assumptions FY10 Nucleus FFB production, tonnes

FY11

FY12

FY13f

FY14f

473,576

678,330

948,603

1,187,105

1,430,849

% change

42.5%

43.2%

39.8%

25.1%

20.5%

CPO price assumption, IDR/kg

6,911

7,532

7,193

6,660

6,981

% change

13.4%

9.0%

-4.5%

-7.4%

4.8%

Cost of production, IDR/kg

3,395

3,160

3,625

3,416

3,586

9.8%

-6.9%

14.7%

-5.8%

5.0%

% change Source: Company data, RHB estimates

See important disclosures at the end of this report

2

Bumitama Agri (BAL SP) 13 August 2013

Financial Exhibits Profit & Loss (IDRbn)

Dec-10

Dec-11

Dec-12

Dec-13F

Total turnover

1,961

2,805

3,526

3,661

4,401

Cost of sales

(1,243)

(1,566)

(2,103)

(2,169)

(2,506)

1,240

1,423

1,492

1,895

Gross profit Gen & admin expenses

717

Dec-14F

(113)

(155)

(167)

(184)

Selling expenses

(32)

(39)

(63)

(73)

Operating profit

572

1,046

1,192

1,235

1,609

Operating EBITDA

643

1,139

1,282

1,341

1,734

Depreciation of fixed assets

(71)

Operating EBIT

572

Net income from investments

-

Interest income Interest expense

(92) 1,046 -

9 (112)

(90) 1,192

(106) 1,235

(8)

(6)

11

15

8

(105)

(112)

(124)

(202) (84)

(125) 1,609 (5) 8 (124)

Exchange gains

-

-

(38)

-

-

Exceptional income - net

-

-

46

-

-

Other non-recurring income

831

181

58

-

-

1,301

1,133

1,152

1,113

1,488

Pre-tax profit Taxation

(329)

(297)

(262)

(280)

Minority interests

(134)

(131)

(114)

(84)

(373)

Profit after tax & minorities

838

705

777

749

1,003

Reported net profit

838

705

777

749

1,003

Recurring net profit

217

571

697

749

1,003

Dec-10

Dec-11

Dec-12

Dec-13F

Dec-14F

572

1,046

1,192

1,235

1,609

71

92

90

106

125

(584)

122

(257)

103

94

28

(108)

(99)

(112)

Source: Company data, RHB estimates

Cash flow (IDRbn) Operating profit Depreciation & amortisation Change in working capital Other operating cash flow

(2)

Operating cash flow

57

1,260

1,053

1,336

9

11

15

8

Interest received Interest paid

(103)

(151)

(158)

(109)

Tax paid

(132)

(160)

(319)

(280)

Cash flow from operations

(169)

961

591

955

Capex

1,729 7 (110) (373) 1,253

(634)

(880)

(1,264)

(1,225)

(1,246)

Other new investments

(19)

(57)

(134)

(140)

(147)

Other investing cash flow

(94)

(105)

(282)

(86)

(90)

(747)

(1,042)

(1,679)

(1,451)

(1,484)

-

1,815

Cash flow from investing activities Proceeds from issue of shares Increase in debt Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated Forex effects Implied cash at end of period

1,280 (28) 1,253

1 (12) (12)

-

-

197

149

301

(301)

125

54

274

355

1,711

24

363

270

887

665

337

(93)

623

(222)

125

2

(0)

363

270

(6) 887

-

-

665

789

Source: Company data, RHB estimates

See important disclosures at the end of this report

3

Bumitama Agri (BAL SP) 13 August 2013

Financial Exhibits Balance Sheet (IDRbn)

Dec-10

Dec-11

Dec-12

Dec-13F

Dec-14F

Total cash and equivalents

363

270

887

665

789

Inventories

156

263

324

350

404

Accounts receivable

16

34

48

92

44

Other current assets

58

95

261

73

99

Total current assets

593

663

1,518

1,179

1,336

Total investments Tangible fixed assets

-

-

4,676

5,635

182

191

201

7,044

8,027

9,198

Intangible assets

95

78

84

84

84

Total other assets

198

131

261

347

437

Total non-current assets

4,969

5,844

7,571

8,649

9,921

Total assets

5,562

6,507

9,089

9,828

11,257

Short-term debt

244

516

791

632

506

Accounts payable

269

365

468

456

551

Other current liabilities

208

412

233

217

269

Total current liabilities

721

1,293

1,492

1,305

1,326

2,052

1,795

1,792

1,941

2,242

516

493

518

520

573

Total non-current liabilities

2,568

2,288

2,310

2,461

2,815

Total liabilities

3,289

3,581

3,802

3,766

4,142

45

1,807

1,807

1,807

1,714

2,475

3,263

4,019

5,027

294

161

2,008

2,681

4,888

5,644

6,652

Minority interests

266

244

399

419

463

Other equity

-

-

-

-

Total equity

2,273

2,925

5,287

6,063

7,115

Total liabilities & equity

5,562

6,507

9,089

9,828

11,257

Total long-term debt Other liabilities

Share capital Retained earnings reserve Other reserves Shareholders' equity

-

(0)

(182)

(182)

(182)

Source: Company data, RHB estimates

Key Ratios (IDR)

Dec-10

Dec-11

Dec-12

Dec-13F

Dec-14F

Revenue growth (%)

37.0

43.1

25.7

3.9

20.2

Operating profit growth (%)

55.1

82.8

14.0

3.6

30.2

Net profit growth (%)

279.2

(15.9)

10.2

(3.5)

33.8

EPS growth (%)

279.2

(15.9)

(99.2)

(51.6)

33.8

Bv per share growth (%)

73.4

33.6

(99.3)

15.5

17.9

Operating margin (%)

29.2

37.3

33.8

33.7

36.6

Net profit margin (%)

42.8

25.1

22.0

20.5

22.8

Return on average assets (%)

18.8

11.7

10.0

7.9

9.5

Return on average equity (%)

53.0

30.1

20.5

14.2

16.3

85.0

69.8

32.1

31.5

27.5

(26,358)

150,082

670

543

713

Net debt to equity (%) Recurrent cash flow per share Source: Company data, RHB estimates

See important disclosures at the end of this report

4

Bumitama Agri (BAL SP) 13 August 2013

SWOT Analysis  Ability to develop good plantations and generate strong yields

 Regulatory changes could affect future growth

 Strong corporate social responsibility (CSR) programmes lead to good relationships with local Governments

 Labour shortage becomes more acute due to Indonesia’s large-scale expansion

 Has plenty of landbank to develop

 Rising wages due to the country’s inflation

 Strong improvement in operating cashflow, thus allowing room for capex funding and potential M&As

 A lack of downstream business, which could be a negative as the company grows in size  Dependent on local refiners for off-take as it does not have any distribution network

P/E (x) vs EPS growth

P/BV (x) vs ROAE

14

6%

12

-12%

10

-30%

8

-48%

6

-66%

P/E (x) (lhs)

Jan-14

-120%

Jan-13

0

Jan-12

-102%

Jan-11

-84%

2 Jan-10

4

EPS growth (rhs)

Source: Company data, RHB estimates

2.5

50%

2.0

40%

1.5

30%

1.0

20%

0.5

10%

0.0

0%

P/B (x) (lhs)

Jan-14

24%

60%

Jan-13

16

3.0

Jan-12

42%

Jan-11

60%

18

Jan-10

20

Return on average equity (rhs)

Source: Company data, RHB estimates

Company Profile Bumitama Agri (BAL) is a high-growth oil palm plantation company with all its plantations in Indonesia. As at end-2012, it had 101,182 ha of nucleus planted area and 32,185 ha of plasma area. The group, which was listed on the Singapore Exchange on 12 April 2012, started initial planting in 2004 with 5,023 ha of nucleus area and has to date planted a total of 101,182 ha of nucleus area across Sumatra and West and East Kalimantan. The company was started and controlled by the Hariyanto family, who still holds a 50.9% stake. The Hariyanto family started out in the mining and timber businesses but oil palm plantation is now their main business focus.

See important disclosures at the end of this report

5

Bumitama Agri (BAL SP) 13 August 2013

Recommendation Chart Price Close Recommendations & Target Price

1.16

1.15

NR

1.20

1.10 1.05

1.00 0.95 0.90

0.85 Buy 0.80 Apr-12

Neutral

Sell

Trading Buy

Aug-12

Dec-12

Take Prof it

Not Rated

Apr-13

Source: RHB estimates, Bloomberg Date

Recommendation

2013-05-21

Buy

Target Price Price 1.16

1.02

2013-05-20

Buy

1.16

1.01

Source: RHB estimates, Bloomberg

See important disclosures at the end of this report

6

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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Buy: Share price may exceed 10% over the next 12 months Trading Buy:Malaysia Share price may exceed 15% over the next 3 RHB months, however longer-term outlook remains uncertain Research Office OSK Securities Hong Kong Ltd. DMG & Partners Neutral: Share mayInstitute fall within over known the next months (formerly as 12 OSK Securities Hong Kong Ltd.) Securities Pte. Ltd. RHB price Research Sdn the Bhdrange of +/- 10% Take Profit: Target price has been attained. Look to accumulate at lower levels Level 11, Tower One, RHB Centre 12th Floor 10 Collyer Quay Sell: Share price may more than 10% over the next 12 monthsWorld-Wide House Jalanfall TunbyRazak #09-08 Ocean Financial Centre Lumpur 19 Des Voeux Road Singapore 049315 Not Rated: Stock isKuala not within regular research coverage

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