Bumitama Agri

Bumitama Agri: DBSV maintains Buy with $1.35 TP. House note that there is NO significant earnings and valuation impact to Bumitama's potential loss of 4,810 ha in Izin Lokasi House understand that all of the stated planted area is still immature; and that the group intends to commence legal proceedings to defend its position. In house opinion, any legal proceedings would take some time to resolve; and if the 3,420 hectares were to be excluded from house projections, the net impact to FY13F and FY14F earnings would be -1.3% and -2.2%, respectively. This would impact DCF valuation by only 1c. Hence, rating is unchanged. In a worst-case scenario, there are two possible outcomes: 1) The loss of Izin Lokasi is permanent, but the govt must still compensate Bumitama for the loss. 2) The land is all converted into plasma estates, in which case the land will still contribute albeit at lower margins UOB Kay Hian similarly maintains Buy with $1.10 TP, with a potential to increase TP. House note that Key highlights from the conference call with management: House note that no earnings impact as all areas are still immature so no contribution for this year and next yr. When enter into first year of production contribution will be negative as operating cost for age 4-5 years would be higher than rev. In a worst case scenario, land will be taken back but will be compensated for developmental cost. Do not expect full refund and estimated the new planting capex spent for these areas are in the range of US$7.5-8.0m (capitalised).