• Bumitama Agri Ltd (BAL) (UNRATED) reported a net profit of Rp1.7bil in FY21, which exceeded consensus estimates of Rp1.5trillion. BAL’s average CPO price climbed by 18% to Rp9,900/kg in FY21 from Rp8,300/kg in FY20. Group FFB production rose by 2.0% in FY21.

• BAL’s FFB production is expected to improve by 5% to 10% in FY22F. 1H is estimated to account for 48% of the full year’s FFB output while 2H is anticipated to account for the balance 52%.

• BAL envisages its FFB production pattern to normalise in FY22F after the abnormal trends in FY21. BAL’s FFB production was the lowest in 4QFY21, which was the first time since the group was listed in 2012.

• Historically, BAL’s FFB production was the highest in either 3Q or 4Q of the financial year. We attribute the abnormality in FY21 to heavy rains in 4Q, which affected harvesting. BAL has carried out minimal forward sales of its FY22F CPO production so far.

• BAL’s cash cost of production is expected to increase by 20% to 25% in FY22F from Rp4,500/kg (RM1,305/tonne) in FY21. The rise in the production cost per tonne in FY22F can be attributed mainly to a 60% 80% surge in fertiliser costs. Incidentally, BAL completed 90% of its full-year fertiliser requirements in FY21.

• New plantings of oil palm are estimated to be 500ha in FY22F. BAL is also expected to replant about 1,400ha of ageing oil palm trees in FY22F vs. 500ha in FY21.

• We understand that the Indonesia government is currently monitoring the distribution of cooking oil in the country to ensure that there is sufficient supply. If the situation does not improve, the Indonesia government may tighten the domestic market obligation (DMO), which is 20% of total shipments currently. Presently, palm refiners in Indonesia have been requested to focus on “minyak curah”, which is cooking oil sold in small packets as the Hari Raya festive period is approaching.

• We also understand that since the DMO was implemented in early February, the difference between the CPO price in Malaysia and Indonesia has widened. Currently, 80% of the realised price of CPO in Indonesia consists of the spot price while the balance 20% is the governmentfixed price of Rp9,300/kg.

Source: AmInvest Research - 1 Mar 2022