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Analysts lower TPs for Bumitama Agri following disappointing end to the year

Khairani Afifi Noordin
Khairani Afifi Noordin • 3 min read
Analysts lower TPs for Bumitama Agri following disappointing end to the year
Earnings going forward will be boosted by inventory drawdowns in 1QFY2023, but higher unit costs and lower ASP could offset this. Photo: Bumitama Agri
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Analysts at UOB Kay Hian and RHB Group Research have cut their target prices for Bumitama Agri P8Z -

to 55 cents and 66 cents respectively following the planter’s below-expectations FY2022 results.

In their March 2 note, UOBKH’s Jacquelyn Yow Hui Li and Leow Huey Chuen say Bumitama Agri’s FY2022 net profit at 3.12 trillion rupiah only accounts for 90% of their full-year assumption.

The negative variance was mainly dragged by lower-than-expected production in 4QFY2022, higher cost of production, lower sales volume due to temporary logistic constraints in moving crude palm oil (CPO) from Kalimantan to Sumatera or Jawa, as well as higher dividend withholding tax y-o-y for 4QFY2022.

Despite lower-than-expected results, Yow and Leow still deem this a good set of results. This is due to record-high fresh fruit bunches yield despite challenging weather conditions as well as the potential bumper final dividend to be declared in March and April 2023.

“Based on a 40% payout, the final dividend could be 4.75 cents per share, or a yield of 7.7%. We foresee dividend payout being higher than 40%,” the analysts highlight. They have kept their “hold” call on the stock.

Although earnings going forward will be boosted by inventory drawdowns in 1QFY2023, higher unit costs and lower average selling price (ASP) could offset this, say RHB analysts. They have downgraded Bumitama to “neutral”.

See also: No major negative surprises expected in 2QFY2024, RHB lifts DBS’s TP to $41.20

Bumitama saw a 6.5% q-o-q rise in CPO ASP in the fourth quarter, bringing FY2022 ASPs to 12,519 rupiah per kilogram. The analysts highlight that despite FY2022 CPO output rising 13% y-o-y, CPO sales volume was only at 1.9% growth y-o-y.

This was due to logistics issues related to weather-damaged roads. As such, Bumitama’s inventory levels rose to four times its normal levels at the end-2022. It has seen more than half of this excess inventory cleared in January 2023 and hopes to normalise this by end-1QFY2023.

Unit costs rose 88% q-o-q in 4QFY2022, bringing costs up by 22% y-o-y, higher than Bumitama’s original guidance of 10%-15% increase. The company managed to apply 100% of its fertiliser requirements for FY2022.

See also: CGS International lowers TP to $3.30 for HongKong Land following challenging near-term outlook

Moving forward, Bumitama is guiding for unit costs in FY2023 to increase further due to higher fertiliser costs as well as higher labour costs due to the annual minimum wage hike of 7%-9%. The RHB analysts estimate that unit costs would rise 15%-20% in FY2023.

They lowered their FY2023 to FY2024 estimates by 7%-8% after imputing higher unit costs and the latest taxes and duties applicable in Indonesia, as well as RHB’s latest inhouse foreign exchange assumptions.

Meanwhile, UOBKH analysts revise their FY2023 to FY2024 earnings estimates downward by about 18% to factor in higher fertiliser and fuel costs.

As at 11.30am, shares in Bumitama are trading 0.5 cents lower or 0.82% down at 60.5 cents.

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