2H21: Results Above Expectations
BAL’s 2021 results came in above our expectations, mainly due to the better-than-expected CPO ASP which was able to offset the impact from its previous forward sale contracts. We expect 2022 earnings to increase by 25% yoy on the back of: a) strong CPO prices; and b) higher CPO production, thanks to both internal and external FFB production. Maintain BUY with a higher target price of S$0.85, after factoring in the higher CPO ASP for 2022.
RESULTS
• Results above expectations. Bumitama Agri (BAL) reported 4Q21 core net profit of Rp1,083b (+82% qoq, +79% yoy) , bringing 2021 total core net profit to Rp1,677b (+46% yoy). This is above our and consensus’ expectations, mainly buoyed by strong CPO net realised selling prices. BAL CPO net realised ASP came in above our expectations and better than some of its peers at Rp9,852/kg, despite BAL’s large commitment of its 1H21 sales at Rp8,364/kg.
• Better hoh and yoy earnings. The better hoh and yoy earnings were mainly buoyed by strong net realised selling price which had increased by 43% hoh, despite lower FFB production and sales volume in 2H21.
• FFB production came in below expectations. Nucleus FFB production for 2021 came in below expectations, with 1.3% yoy growth. The lower FFB production was mainly dragged in 4Q21 where it had the lowest 4Q output since its listing, mainly due to the high rainfall. The average number of rainy days in BAL-managed estates reached 190 days in 2021, 22% more than the 10-year average. Having said that, its FFB yield had improved from 19.0 tonne/ha in 2020 to 19.3 tonne/ha in 2021. Oil extraction rate remains flat yoy at 22.6% despite higher rainfall and higher external FFB purchase (+4% yoy).
STOCK IMPACT
• Expect earnings to continue performing. With recent CPO prices continuing to spike, we reckon that BAL would continue to benefit with the current Indonesia tender price hovering around Rp17,000/kg (USD1,181/tonne). Management also guided that BAL did not enter into any forward sale since 1H21.
• FFB production growth for 2022. For 2022, management has guided for a 5-10% yoy nucleus FFB production growth with the production pattern starting to normalise recently. BAL has also guided for a ratio of 48:52 for 1H:2H FFB production for 2022. Besides, we expect CPO production to grow by 17% yoy as we expect BAL to increase its third-party FFB purchases in view of Indonesia’s total FFB output increasing in 2022, which may result in higher mill utilisation rate.
• Delay in fertiliser application. The fertiliser application for 2021 was delayed, with BAL only applying 90% of its initial budgeted volume. The management also mentioned that the fertiliser cost increased by 60-80% yoy for 2022 and hence the total cost of production would increase by 20-25%. BAL’s cash cost for 2021 was at Rp4,500/tonne.
• Replanting activities. BAL had replanted about 500 ha for 2021 and expects the same for 2022. On new planting, BAL targets to plant 1,400 ha, mostly at the West Kalimantan area.
• Impact from DMO. BAL has committed a certain volume of its monthly CPO production under Domestic Market Obligation (DMO) to its largest buyer – Wilmar International. Based on our channel check, the commitment from most upstream players to DMO worked out to be about 15% of their nucleus CPO production. After taking into consideration the CPO produce from plasma and third party FFB (about 50% of total FFB processed), the committed volume under DMO will dilute for BAL to only about 6% to 7%.
EARNINGS REVISION/RISK
• Revised our earnings forecast. We have adjusted our net profit forecasts by about 35% for 2022, factoring in higher CPO price assumption of RM4,200/tonne. Our net profit forecasts for 2022-24F net profit are at Rp2.30t, Rp1.80t and Rp1.97t respectively.
VALUATION/RECOMMENDATION
• Maintain BUY with a higher target price of S$0.85 (previous TP: S$0.65), based on 7x 2022F PE.
SHARE PRICE CATALYST
• Higher-than-expected CPO prices.
• Higher-than-expected FFB production.