• Bumitama Agri Ltd (BAL) (UNRATED) released its 3QFY18 results yesterday. The group’s net profit of Rp889.7bil was within consensus estimates of Rp1.211 trillion for the full year. BAL’s net profit rose by 7.2% to Rp889.711bil on the back of a higher interest income. BAL’s revenue inched up by 1.7% YoY to Rp6,176.5bil in 9MFY18 as an increase in the CPO sales volume helped offset the negative impact of weaker CPO prices.

• We understand that the issue of the shortage of barges in Kalimantan has not been resolved yet. Due to the shortage of barges in Kalimantan, the difference between CPO prices in Kalimantan and Sumatra has widened to about Rp600/kg. Also, BAL's palm inventory surged to 4x–5x its normal level as at end-September 2018.

• The problem arose not only because of the high palm production in Kalimantan but also due to barges being used for the shipment of biodiesel. Recall that Indonesia extended the mandatory blending of B20 biodiesel to other industries such as railway, power and mining in September 2018. We understand that the Indonesian government is thinking of implementing B25 in year 2019F. We also gather that the government is not keen to reduce the export tax on CPO products.

• BAL believes that the issue would be resolved next year as more companies buy barges and build bulking installations. It takes about four months to build a bulking installation. In the short term, the problem is expected to be exacerbated by robust industry palm production in 4QFY18. BAL reckons that its FFB production would reach its highest level in 4QFY18. BAL’s FFB output is envisaged to remain high in 1QFY19. BAL’s palm operations are mainly in Kalimantan.

• BAL forecasts its FFB production growth to be 25% to 30% in FY18E compared with 27.0% achieved in 9MFY18. There is no guidance for FY19F yet.

• BAL’s fertiliser costs may be high in 4QFY18 as there was a delay in fertiliser application in 9MFY18. The group has only applied 60% of its full-year fertiliser in 9MFY18 compared with 92% in 9MFY17. The slower fertiliser application was due to a delay in delivery by the suppliers and efforts to use new types of fertiliser to improve the oil extraction rate. BAL will try to complete all of its fertiliser application by end-FY18E.

• BAL’s CPO production cost was Rp3,783/kg (RM1,075/tonne) in 9MFY18 vs. Rp4,526/kg (RM1,476/tonne) in 9MFY17. CPO production cost was Rp3,424/kg (RM960/tonne) in 3QFY18 compared with Rp3,948/kg (RM1,263/tonne) in 3QFY17.

Source: AmInvest Research - 13 Nov 2018