Bumitama Agi: (S$0.665) Record production in 4Q15; sell-down overdone
4Q15 CPO production hit an all-time high of 222,129 MT (+27.4% y/y), while palm kernel production surged 29.6% to 43,243 MT due to a 30% jump in FFB harvest.
The strong set of figures represents 32% of Maybank-KE's 2015 output, and brings full-year FFB nucleus output to 1,578,815 MT (+13%), 98% of full-year forecast.
On the strong production, the house believes that investor confidence is expected to be restored as the recent sell-down in the upstream CPO planters was mainly on concerns over production outlook, caused by the drought in Kalimantan in 3Q15.
Additionally, expectations for a strong 4Q15 remain, with results to be boosted by high inventories brought forward from 3Q15, although CPO ASP stayed relatively flattish q/q. Earnings will also be supported by FX reversal arising from a strengthening IDR against USD.
The house thinks the recent sell-down has been overdone and maintains its Buy, with TP of $0.85.
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