• Bumitama Agri Ltd (BAL) (UNRATED) reported an FY18 net profit, which was slightly below consensus estimates. The group’s net profit fell by 8.1% to Rp1.1trillion in FY18 mainly due to a 13.2% drop in average CPO price.

• BAL’s FFB nucleus production surged by 27.6% in FY18. BAL’s FFB production peaked in 3QFY18. Comparing 4QFY18 against 3QFY18, the group’s FFB nucleus FFB output fell by 12.7%.

• BAL expects to achieve an FFB production growth of 15% (nucleus and plasma) in FY19F compared with 28.3% in FY18. Mature areas are envisaged to increase by 8,000ha in FY19F (FY18: 5,000ha) and 3,000ha in FY20F. New plantings of oil palm are estimated to be 2,000ha in FY19F compared with 2,490ha in FY18.

• 2H is anticipated to account for 55% of BAL’s FFB production in FY19F while 1H is expected to account for 45%. In contrast, 2H accounted for 52% of BAL’s FFB production in FY18 while 1H made up 48%.

• We understand that BAL’s FFB production trends changed in FY18 due to the lagged impact of El Nino, which took place in FY15. This resulted in BAL’s FFB production peaking in the 3Q of FY18 instead of the usual 4Q.

• BAL thinks that its FFB production trends would normalise in FY19F. We also gather that there have been no problems with the weather as the distribution of rainfall at BAL’s oil palm estates in Kalimantan has been quite good.

• BAL expects its cash cost to remain flat at Rp3,796/kg (RM1,077/tonne) in FY19F as a higher volume of CPO production mitigates the 8% increase in minimum wage and 10% rise in fertiliser costs.

• BAL did not complete its fertiliser application in FY18 due to a delay in shipments. The group had only applied 90% of its full-year fertiliser requirements in FY18. As such, BAL would be applying more fertiliser in 1QFY19. This implies that the group’s production cost per tonne may increase in 1QFY19.

• We understand that the issue of the shortage of barges in Kalimantan has subsided. The shortage of barges started easing in December 2018 as the Indonesia government said that biodiesel would be transported to only 20 ports in the country instead of every port.

Source: AmInvest Research - 27 Feb 2019