Post 1H22 results briefing
BUY for its single-digit PER & high dividend yields
1H22 results were boosted by record CPO price and lower-than-expected cost. There is upside risk to earnings if BAL’s revised FFB growth guidance of 16-18% YoY materializes for FY22E. Else, we continue to expect earnings to soften in 2H22 following recent CPO price correction and higher fertiliser cost expectations. Trading at single-digit PER offering over 6% dividend yields, BAL remains a BUY with SGD0.88 TP on 8x FY23 PER, – 0.5SD its 5Y mean. Its interim DPS of SGD0.0125 will go ex-date on 6 Sept.
BAL hosted a post results briefing. Key takeaways: (1) Better-than-expected CPO ASP was key to its outperformance in 2Q22 whereby 2Q’s CPO ASP achieved of IDR14,923/kg (+74% YoY, +10% QoQ) was above market price. This was in part due to the long term contract arrangements with committed volumes (but not prices) which led to a 1-2 months’ lag price recognition; (2) Following its strong FFB nucleus output growth in 1H22 (+9% YoY to 1.365mt), BAL has revised up its growth guidance to +16-18% YoY (from +5-10% YoY) as it expects 2H output to be at least similar to 1H. Still, BAL highlighted that it will only gain a clearer picture in Sept once the census figure from field survey is out; (3) Group output will likely peak in 4Q after softening in 3Q; (4) Inventory as at end-June is ~70% of available tank capacity, or about 2 months’ supply. BAL expects a normalisation of inventory by end-Sept; and (5) ~50% of its full-year fertiliser plan has been applied in 1H22 (1H21: ~45%).
Cost guidance unchanged at +20%-25% YoY for FY22E
BAL guides that its 1H22 nucleus cost of production was Rp5,200/kg (+14% YoY), much higher than our earlier estimates. The difference suggests that BAL benefited immensely from its constant purchase of 3rd party FFBs (even during the ban) and made better processing-cum-inventory gains in 2Q. For FY22E, BAL maintains its unit cost of production guidance to be higher by 20-25% YoY, following fertiliser price hike (FY21: IDR4,564/kg).
Maintaining our earnings forecasts
While we maintain our EPS forecasts, earnings risk is on the upside if BAL manages to deliver +16%-18% YoY output growth (MIBG forecast: +10% YoY).