Bumitama Agri's earnings predicted to soar 46%

Still gaining momentum despite weak CPO prices.

According to DBS, it expects Bumitama’s 2Q13 earnings to jump by 39-46% q-o-q to between Rp202bn and Rp221 bn on the back of c.7% increase in CPO sales volume, c.3% recovery in CPO prices, 1% Rupiah depreciation, and a slight decline in the group’s unit selling expense.

Here's more:

Bumitama had in Apr13 completed the acquisition of NKU (announced 18 Oct12) that added 5,234 ha (of which 3,374 ha are planted) to its total land bank.

The group excluded 5,766 ha of forestry land initially included in NKU’s permit. Bumitama has capacity to leverage up its balance sheet (FY12 debt/equity ratio excluding Non-Controlling Interests was 53%); if there are more acquisition targets next year.

Currently, the group’s debt covenants include maximum debt/equity ratio of 1.5x and debt/EBITDA ratio of 3.0x.

YTD, the counter has underperformed the STI by 3.7% but outperformed Singapore planters (under our coverage, ex Wilmar) by 16%. We believe the weak CPO prices have been priced in and there is limited downside from here.

We expect Bumitama’s earnings to expand at 31% CAGR over the next three years, driven by CPO price recovery and 9.8% CPO sales volume CAGR.

The group had distributed an interim dividend of S$0.012 per share in Jun13, and is considering a dividend policy (none currently). We have not imputed this in our forecasts.

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