Bumitama on track for double-digit growth

Highlights
1Q14 earnings fall short. Ex. Rp32bn of translational FX gains, Bumitama (BAL) booked 1Q14 core earnings of Rp276bn (+78% y-o-y; -26% q-o-q) – below the Rp337-363bn expected. The difference comes from c.Rp117bn higher-than-expected COGS due to higher FFB purchase price and costs from 13.5k ha of newly matured estates in 1Q14. BAL also booked c.5% lower sales volume than expected, as there was hardly any inventory drawdown in 1Q14. Reported 1Q14 earnings came in at Rp308bn (+103% y-o-y; -19% q-o-q) – representing 22% of our full-year forecast

Buoyed by strong CPO prices.
BAL booked a 35%y-o-y (+8% q-o-q) jump in 1Q14 CPO ASP to Rp8,786/kg and c.10% y-o-y increase in CPO sales volume. However, higher costs (ex. raw material purchases) were a drag, as yields/OER from newly matured estates were still low. 1Q14 gross profit consequently eased 9% q-o-q, even though top line expanded by 4% q-o-q. Likewise, 1Q14 GPM declined to 39% from 45% in 4Q13 and was flat compared to 1Q13. BAL also booked Rp8.8bn of other income, mainly a one-off tax write-back. Financing costs also jumped 28% y-o-y due to higher debts.

Net gearing still decent.
BAL’s cash conversion cycle extended to 14 days from 1 day in previous quarter due to
longer receivable days. Cash balance quadrupled q-o-q to Rp2.1tn from recently raised RM500m of Sukuk. Accordingly, borrowings jumped to Rp5.5tn (from Rp4,144bn at end of Dec13). This translated into net debt-to-total equity ratio of 53% - down from 60% as at end Dec13, mainly on account of a higher cash level. Combined with syndicated debt repayment this year, we expect net gearing to settle at 49% by end of FY14. Maintaining 8k ha new planting guidance. BAL had no new planting in 1Q14; but expects to meet its target of 8k ha by year end. The group has c.29k ha of plantable land bank – of which we understand c.20k ha has been approved for land clearing.

Our View
No change in forecasts, as we expect yields from newly matured estates to ramp up in the remainder of the year. We expect BAL to book 28% growth in own FFB output (vs. 25% guided).

Recommendation BUY rating reiterated.
The counter has a 10% upside potential, excluding a 1% dividend yield. We maintain our BUY call, as we believe BAL continues to offer the highest earnings growth within our sector coverage.