Post 9M22 results briefing
Single-digit PER with good dividend yields
BAL is on track to deliver +16%-18% YoY FFB output growth in 2022, and its 3Q22 output was key to recent earnings outperformance. We raise our FY22E-24E by +19%/+7%/+7% mainly on higher output assumptions. Following our EPS revisions, we tweaked our TP slightly to SGD0.89 (from SGD0.88) on unchanged 8x FY23 PER, -0.5SD its 5Y mean. Valuation remains attractive trading at single-digit PER with >6% dividend yields.
BAL hosted a post results briefing. Key takeaways: (1) Strong output was key to its outperformance in 3Q22. BAL maintains its +16-18% YoY FFB output growth guidance for 2022, expecting 2H22 output to be 50%-51% of full-year output. This implies that output has likely peaked in 2Q22 this year. 4Q22 output is likely to be trending down QoQ; (2) There was net inventory build-up QoQ in 3Q (ie. sales < output). BAL is holding slightly more than 2 months of inventory at end-Sept, and this may help lift sales in 4Q22 or 1Q23 to soften the declining output trend; (3) ~80% of its fullyear fertiliser requirement has been applied in 9M22 (1H22: ~50%).
FY22E unit cost may be lower than earlier guidance
BAL guides that its 3Q22 nucleus cash cost of production was IDR4,200/kg, lower than 1H22’s unit cost of IDR5,200/kg. This brings 9M22 cash cost to IDR4,800/kg. For FY22E, BAL has now revised down its unit cost guidance to ~IDR5,000/kg (down from ~IDR5,400/kg; FY21: IDR4,564/kg) assuming it cannot complete its fertilizer programme by year end.
Raising our EPS forecasts by 7%-19%
Following the strong output achieved in 9M22, we now raise our FY22E FFB nucleus growth assumption to 16% (from 10%), at the lower end of BAL’s guidance of +16%-18%. This represents a 5.5% increase to our FY22E absolute output. At the same time, we raised our FY23E-24E FFB output by 3.7%/3.7% respectively. We have also lifted milling margins from 3rd party for FY22E as well as raised our CPO ASP (+2%) given better ASP achieved in 9M22. Overall, we raised our FY22E-24E EPS by +19%/+7%/+7%.