Revenue is up 7.7 per cent on the year at 3.87 trillion rupiah

 

BUMITAMA : P8Z +2.22%Agri : P8Z +2.22% on Tuesday (May 14) posted a 23.5 per cent drop in net profit to 328.4 billion rupiah (S$27.6 million) for the first quarter ended Mar 31, 2024, from 429.1 billion rupiah in the same period last year.

 

The group attributed the fall in profit to the strengthening US dollar, especially against the Indonesian rupiah, amid a higher-for-longer interest rate environment.

 

Excluding foreign exchange (forex) losses in the quarter, net profit would have been 22.8 per cent higher at 373.7 billion rupiah, versus 304.2 billion rupiah in the same period a year earlier, where the group recorded forex gains.

 

Q1 was also a &ldquo low cycle&rdquo period for palm oil production amid extreme weather conditions, the group said in its business update. 

 

This resulted in a considerably tight supply situation earlier in the year when it coincided with increased domestic demand during Ramadan, driving palm oil prices to a peak of 13,400 rupiah per kilogram at the start of April.

 

Revenue was up 7.7 per cent at 3.87 trillion rupiah from 3.6 trillion rupiah on higher crude palm oil (CPO) sales.

CPO, which registered a 7 per cent year-on-year rise in sales volume, accounted for 91 per cent of total sales. This more than offset the 1 per cent decline in average selling prices.

 

Palm kernel sales, meanwhile, jumped 19 per cent year on year on strong sales volumes, which rose 18 per cent compared with the same period a year earlier.

 

Average selling prices for palm kernel products inched up 1 per cent during the quarter.

 

&ldquo While the 1 per cent year-on-year rise in PK (palm kernel) price looks negligible, it is worth noting that the lauric oil market has started to rebound in early 2024 due to improving supply-demand dynamics,&rdquo the group said.

Bumitama Agri

Between Apr 22 and 23, Bumitama Agri&rsquo s : P8Z 0% lead independent director Lim Hung Siang increased his deemed interest by 100,000 shares at S$0.74 per share. This raised his total interest in the producer of crude palm oil (CPO) and palm kernel in Indonesia to 250,000 shares or 0.014 per cent of the company. Lim&rsquo s expertise spans the transport and engineering sectors, including leadership roles at Singapore Automotive Engineering and ComfortDelGro. He was first appointed to the Bumitama Agri board in June 2018.

 

Bumitama Agri ranks among Singapore&rsquo s 100 most traded stocks and also among the 20 Singapore stocks that have booked the most net institutional inflow since the end of 2023. The stock also maintains a PE ratio of 6.3 times and ROE of 19 per cent. Within the five-year period starting 2019, Bumitama Agri&rsquo s revenue has doubled, and attributable net profit has grown at a compound annual growth rate (CAGR) of 37.4 per cent.

 

Earlier this month, the executive chairman and CEO of Bumitama Agri, Gunawan Lim, highlighted that the company&rsquo s focus on sustainable practices and efficiency programmes led to a record monthly yield of 2.1 tonnes per hectare in July 2023 and a total fresh palm fruit bunches (FFB) production of 5.38 million tonnes for the year. The five-year CAGR stood at 3.3 per cent, with Western Kalimantan estates showing a 4 per cent increase in FFB output and a 6 per cent rise in CPO production. The company&rsquo s palm oil mills, with a combined FFB processing capacity of 6.39 million tonnes, achieved an oil extraction rate of 22.7 per cent in FY2023. This resulted in 1.22 million tonnes of CPO, marking a 2.9 per cent increase from the previous year. Palm kernel production also rose by 0.9 per cent to 253,114 tonnes. By the end of FY2023, Bumitama managed 187,116 ha of palm plantations, with the majority being mature plants, and replanted 892 ha with high-yield, climate-resilient seedlings.

 

Bumitama Agri&rsquo s financial summary for FY23 (ended Dec 31) highlights a strategic focus on reducing debt and improving the company&rsquo s financial health. Despite a drop in total assets, the company successfully lowered its liabilities by 30.3 per cent, demonstrating a strong commitment to de-gearing. The allocation of 1.39 trillion rupiah for debt repayments significantly lowered the gearing ratio to 0.17 times, marking the fourth year of consistent reduction. The liabilities-to-equity ratio also improved, dropping to 0.25 times from 0.38 times the previous year. These measures have strengthened the balance sheet and positioned the company to enhance shareholder returns moving forward.

 

For the full FY23, Bumitama shareholders approved a total dividend distribution of S$0.068 per share. This was made up of a S$0.0192 special dividend and S$0.0363 final dividend that were proposed in the recent AGM, as well as the S$0.0125 interim dividend that was distributed in September 2023. Based on a share price of S$0.60 at the end of 2023, this represents a gross dividend yield of 11.3 per cent. Since the end of 2023, the share price of the stock has climbed to S$0.75 (as at Apr 25).

 

Looking forward, Bumitama Agri expects CPO prices to find support within the RM3,900 to RM4,200 per tonne range, especially in the first half of the year, adding that this stability is underpinned by restrained supplies and Indonesia&rsquo s continued implementation of its B35 biodiesel mandate, which is on course to be extended to B40.

 

BROKERAGES are turning more bullish on Bumitama Agri : P8Z +3.31%, with the Indonesian palm oil producer having exceeded expectations to report a 33 per cent year-on-year rise in its third quarter net profit.

 

RHB Research on Wednesday (Nov 15) upgraded its call on the stock to &ldquo buy&rdquo from &ldquo neutral&rdquo , as it believes the valuations are now &ldquo cheap&rdquo . 

 

Its higher price target of S$0.70, up from S$0.61 previously, remains pegged to an eight-times price-to-earnings ratio, based on the broker&rsquo s FY2024 estimates.

 

Valuations therefore look attractive against the six-times ratio, at which the stock is currently trading, said RHB&rsquo s research team, as it is now at the low end of its per-range of six to 12 times.

 

This is also considering Bumitama&rsquo s &ldquo handsome&rdquo FY2024 dividend yield of 6.8 per cent, which presents an added advantage for investors, in their view.

 

RHB has raised its FY2023 earnings estimates for the group by about 30 per cent to account for higher external fresh fruit bunches (FFB) output, higher crude palm oil (CPO) sales volumes and lower cost assumptions.

 

The research house further lifted its FY2024 net profit forecasts by 12 per cent, and by another 14 per cent for FY2025.

 

UOB Kay Hian (UOBKH) and Maybank Securities, who both rate the group at &ldquo buy&rdquo , have also raised their target prices.

 

The two brokerages are expecting Bumitama to report lower Q4 results than in Q3 because, in their view, production peaked in Q3. 

 

UOBKH raised its price target to S$0.70 from S$0.65 after similarly adjusting its estimates for higher external FFB production.

 

It expects the group to continue increasing its third-party purchases in conjunction with a higher mill utilisation rate.

 

Its analysts said: &ldquo Higher third-party FFB contributions are expected to accommodate Bumitama&rsquo s upcoming new mills. There are two new mills coming up, with one commencing in November 2023 and another in 2024.&rdquo

 

Maybank&rsquo s higher price target of S$0.94, up from S$0.89 earlier, continues to value Bumitama at an eight-times ratio based on FY2023 estimates. The research house highlighted this ratio as 0.5 standard deviation point below the stock&rsquo s five-year mean.

 

Its analyst Ong Chee Ting said Bumitama&rsquo s key attraction lies in its high forward dividend yields of over 7 per cent.

 

Her earnings-per-share estimates for the group in FY2023 were raised by 7.5 per cent, and by 4.3 per cent in FY2024 to incorporate marginally lower unit costs and higher CPO average selling prices.

 

Contrary to RHB and UOBKH&rsquo s expectations of higher external FFB output, Ong has cut her full-year FFB output forecasts for the year by 3 per cent to reflect a flattish year-on-year growth.

 

BUMITAMA Agri reported a net profit of 874 billion rupiah (S$74.7 million) for the third quarter ended Sep 30, up 33 per cent from 655 billion rupiah the year prior.

 

This marked the Indonesian palm oil producer&rsquo s first period of year-on-year improvement on a rising trend in its quarterly performance.

 

It also meant that its year-to-date (YTD) performance gap &ndash compared to the previous year&rsquo s record-high performance &ndash is narrowing, said the group in a business update on Tuesday (Nov 14).

 

Revenue for Q3 FY2023 rose 20 per cent to 4.3 trillion rupiah from 3.6 trillion rupiah in the same period a year ago, driven by contributions from crude palm oil (CPO) sales and palm kernel (PK).

 

Over the third quarter, Bumitama said its fresh fruit bunches (FFB) yield hit a record high in July 2023 as its productivity averaged higher. FFB yield for Q3 rose 3 per cent from the same quarter the year prior, but was 7 per cent lower over the nine-month period compared to the same period a year ago.

 

While CPO booked its first year-on-year positive in average selling prices (ASP), it declined for the first time when compared to the previous quarter.

 

Within the PK segment, Bumitama said the market conditions for lauric oils remained &ldquo uneventful&rdquo due to the surplus of substitutes. The segment&rsquo s ASP declined a slight 1 per cent versus Q3 FY2022.

 

The group&rsquo s earnings before interest, taxes, depreciation and amortisation (Ebitda) climbed 29 per cent on the year to 1.6 trillion rupiah from 1.3 trillion rupiah in Q3 FY2022.

 

Ebitda margin for the quarter strengthened to 37.6 per cent. This is considerably higher than the group&rsquo s 29.7 per cent average in the past 40 quarters, noted Bumitama.

 

For the nine months ended September 2023, the group&rsquo s net profit fell 27 per cent year on year to 2.1 trillion rupiah from 2.8 trillion rupiah.

 

Revenue declined 6 per cent to 11.8 trillion rupiah from 12.6 trillion rupiah in the first nine months of FY2022. The group said this came as volume increase in CPO sales was mostly offset by a fall in ASPs, while PK &ldquo did not fare well&rdquo due to the still-soft market conditions for laurics oil.

 

FFB yield over the nine-month period was down 7 per cent year on year.

 

ASPs for CPO and PK fell 12 per cent and 41 per cent, respectively, versus the levels in the nine-month period for FY2022.

 

Ebitda fell 27 per cent on the year to 3.7 trillion rupiah from five trillion rupiah. While Ebitda margin declined 8.9 per cent to 31.2 per cent from 40.1 per cent the prior year, the group noted this was higher than its 30.4 per cent average over the past decade. 

 

As at end-September 2023, the group had a planted area of about 187,000 hectares comprising nucleus estates covering 131,000 hectares and 56,000 hectares of plasma estates. The average age as at Jan 1, 2023, stood at 13.3 years.

 

OCBC Investment Research has initiated coverage on Bumitama Agri : P8Z -0.89% with a &ldquo buy&rdquo call and a fair value estimate of S$0.67.

 

It said the counter is a good entry point for long-term investors looking to acquire a higher-than-average dividend yield, as the palm oil producer&rsquo s current valuations are undemanding on a forward price-to-earnings basis.

 

The initiation comes as the group&rsquo s key performance metrics see quarter-on-quarter improvement. Net profit for the second quarter ended Jun 30, 2023, was 77 per cent higher at 759.8 billion rupiah (S$67.3 million), while revenue rose by 9 per cent to 3.9 trillion rupiah.

 

The research team also highlighted Bumitama Agri&rsquo s &ldquo superior productivity, high-quality plantations and continued focus on intensification rather than expansion&rdquo .

 

This puts the group in a good position to maintain above-industry-average yields and capture greater market share, OCBC added.

 

Despite the present softness in crude palm oil (CPO) prices, the palm oil industry&rsquo s long-term fundamentals remain intact, the research team said.

 

This comes amid expectations that global CPO production will enter an &ldquo era of deceleration&rdquo , unsupported by a slowdown in expansion for pail oil plantations, ageing plantations and unfavourable weather conditions.

 

Demand is also projected to shift towards domestic consumption as biodiesel mandates continue to gain traction.

 

&ldquo Given the strategic importance of the palm oil industry to the Indonesian economy, government regulations have thus far been supportive, and we also note the greater emphasis on sustainability over the years,&rdquo OCBC Investment Research said.

 

Therefore, it is optimistic about the growth profile of Bumitama Agri, an upstream player, moving forward.