Bumitama

Bumitama: BAL's 3Q15 results came in below expectations, with a headline net profit of Rp199.8m (-30% y/y, -8% q/q). Stripping out FX loss of Rp19.5b, its core net profit was Rp214b (-27% y/y, -2% q/q). This took its 9M15 core earnings only met 61% of full year consensus estimate.

Revenue fell 13.7% y/y to Rp1.18t due to lower CPO average selling price of Rp6,746/kg (-17%), which was mitigated by higher sales volume of CPO (+2.6% to 156,601 MT) and PK (+11.9% to 29,832 MT).

Operationally, FFB yield inched up 0.1ppt to 4.4 MT/ha, while CPO extraction rate was flat at 23.2%. Average tree profile remains young at 6.9 years, providing scope for higher production growth.

Gross margin narrowed 10ppt to 34.7% due to the decrease in selling prices and higher purchases of external FFB and higher production volume.

Bottom-line was partly shored by a 136% surge in interest income to Rp37.7b mainly from advances given to the plasma farmers. Further cost savings were seen through a reduction of general and admin expenses (-23.2%) and other expenses (-48.0%), partially offset by FX loss of Rp19.5b (+40%) as a result of the depreciation of Rp versus the USD.

Going forward, management guides that 4Q15 will continue to be challenging for the group mainly due to the prevailing low CPO prices and demand. As such, BAL is revising its 2015’s FFB growth to 15% (previously 20%).

Both the Indonesian and Malaysian governments have biodiesel mandate to increase the blending ratio of palm oil to 15% and 7%, respectively, which could lend some support to the demand for palm oil.

BAL traditionally enjoys peak production in 4Q. This coupled with the recent recovery in CPO ASP could help boost the group’s 4Q15 earnings.

At the current price, Bumitama trades at 17.2x annualized 9MFY15 P/E. Maybank-KE maintains its Hold rating with an unchanged TP of $0.85 based on 13x 2016 P/E.