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  • We believe the recent change in export tax structure may be negative for Bumitama Agri as a pure upstream player, which will have to bear the brunt of the higher taxes.
  • Maintain NEUTRAL with new roll-forward Target Price of SGD0.48 from SGD0.43, 9% upside.
  • Valuation is fair at current levels, trading at close to its historical mean.

Bumitama's FFB Current Growth Projections of Up to 10% for FY20F

  • Bumitama Agri (SGX:P8Z) is maintaining its FFB current growth projections of up to 10% for FY20F, despite having achieved a flattish 0.3% y-o-y FFB growth in 1Q20. Management is hoping for significant improvement in FFB output in 2H20. In FY20, the company is targeting to plant up to 1,000ha of land, while 4,000ha is expected to come into maturity.
  • We maintain our FY20F FFB growth assumptions at 4%, and our 8-9% growth assumptions for FY21F-22F.
  • In FY19, unit cost was at IDR4,361/kg (+15% y-o-y). For FY20F, the company expects costs to remain within its guidance of flat to 5% growth y-o-y.
  • As it acquired its fertiliser requirements for 2020 at end-2019, Bumitama Agri was not affected by the IDR’s 18% q-o-q depreciation for its import costs. This is in line with our assumption of a 5-10% y-o-y increase in unit costs for FY20F.

Recent Change in Export Tax Structure Is Negative for Bumitama

  • Recent change in export tax structure is negative for Bumitama Agri as Indonesian plantations would be at a disadvantage over Malaysian plantations when it comes to exporting CPO. This is due to the export tax of USD55/tonne levied on Indonesian CPO vs zero for Malaysian CPO.
  • Bumitama Agri would also have to bear the brunt of the higher export tax when selling domestically to local refineries, as these refineries would normally pay for CPO feedstock based on market prices minus a portion, if not, all of the export tax levy.

Maintain NEUTRAL

  • We make no changes to our forecasts, as we had previously assumed a discount of 5-10% to Malaysian CPO prices for our CPO price assumptions in Indonesia.
  • Despite the unchanged forecasts, we raise our Target Price to SGD0.48, after rolling forward our valuation to Jun 2021F, to reflect a one-year investment horizon.
  • Our Target Price implies an EV/ha of USD10,000/ha, at the mid-end of its peer range of USD5,000-15,000/ha.
  • We maintain our call on Bumitama Agri as we believe its valuation is fair at current levels.
Source: RHB Invest Research - 26 Jun 2020

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