Bumitama

Bumitama: Deutsche initiated the coverage for Bumitama with a BUY rating and TP: $1.50, a 50% upside.

Bumitama has the youngest estate age profile (7 years old) amongst the Indonesian-listen planters, enabling it to sustain a 5 year output CAGR of 33% from 2009 to 2014. The house sees profit doubling in 3-4 years even if CPO prices stay flat.

Based on site visits, the factor that underpins its success in achieving strong new planting is the extensive social welfare Bumitama has invested to ensure labour security and community harmony (a major issue in Indonesia). Bumitama is also the rare few to invest in pre-planting research, to ensure seedlings nursery to soil conditions are studied before planting. This should underpin its future success.

Downside risks include CPO price weakness, weaker-than-expected production, labour shortage and unfavourable revenue tax imposed by the Indonesian government.