We consider Bumitama Agri (SGX:P8Z)’s 1Q23 results to be in line with estimates. Earnings should improve in 2H as productivity recovers and costs moderate.
Valuation is fair at 6x CY23F P/E, in line with peers of 6-9x. Bumitama Agri's share price should be supported by decent FY23F dividend yield of 6.7%. Maintain NEUTRAL, with new S$0.60 target price from S$0.66, 1% upside.
Earnings highlights
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Bumitama Agri recorded a FFB decline of 13% y-o-y in 1Q23 – due to a high base in 1Q22, below our projection of +4.3% and management’s guidance of 3-7% growth. While management is keeping to its 3-7% growth guidance, it has indicated that FY23F growth could come in at the lower end of the range, with 1H:2H output to be at 45%:55%.
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Normalised inventory levels in Mar 2023. Bumitama Agri saw a 5.6% q-o-q rise in CPO ASPs in 1Q, although prices fell 14% y-o-y. A larger drop was seen in PK prices, which fell 53% y-o-y in 1Q. We highlight that despite 1Q22 CPO output falling 10% y-o-y,
CPO sales volume rose 19% y-o-y. This was due to the sale of inventory during the quarter, as Bumitama Agri’s inventory levels have normalised at end-1Q23 (from 4x its normal levels at end-2022). In light of the sharp drop in PK prices, we lower our PK price assumptions to MYR1,800-2,000/tonne (from MYR2,400-2,600/tonne) for FY23F-25F.
Unit costs fell 15% q-o-q but rose 49% y-o-y in 1Q23 to IDR6,700/kg due to higher fertiliser costs and lower output during the quarter. Bumitama Agri managed to apply 25-30% of its fertiliser requirements for FY23 and expects to apply another 30-35% in 2Q due to optimal weather conditions.
For FY23F, management continues to guide for unit costs to rise 20% y-o-y on the back of higher fertiliser costs (+35-45% y-o-y) and higher labour costs due to the annual minimum wage hike of 7-9%.
Bumitama Agri is unlikely to benefit from the current lower fertiliser prices until 4Q23, as it tendered for 70% of its fertiliser requirements in 2022, when prices were still high.
Keep NEUTRAL.
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Above is an excerpt from a report by RHB Securities Research. Clients of RHB may be the first to access the full PDF report @ https://www.rhbtradesmart.com/.
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