• Bumitama Agri (BAL) (UNRATED) has released its 1QFY22 results. BAL’s annualised net profit in 1QFY22 was 70.7% above consensus estimates of Rp2 trillion. The group’s net profit climbed by 5.2x YoY to Rp873bil in 1QFY22 while turnover rose by 69% to Rp3.9 trillion. Average CPO price realised surged to Rp13,600/kg (RM3,975/tonne) in 1QFY22 from Rp7,700/kg (RM2,211/tonne) in 1QFY21.

• Nucleus FFB production growth was -2.5% YoY but 18.9% QoQ in 1QFY22. BAL’s oil palm estates in Central Kalimantan recorded a 7% YoY decline in FFB production in 1QFY22. On a positive note, the West Kalimantan unit posted a 2% YoY improvement in FFB production in 1QFY22.

• We understand that the impact of Indonesia’s export ban on palm oil has not been felt yet. Due to the Hari Raya holidays and wide spread between the bids and asking prices, there were minimal trades on cooking oil and CPO. We gather that in the past week, the bids for cooking oil were hovering at Rp13,500/kg while the asking prices were higher than the government’s target of Rp14,000/kg.

• BAL believes that the export ban would be short-lived. This is because Indonesia produces more palm oil than it consumes. The Indonesia population only consumes a third of the country’s CPO production. In addition, about 15mil to 20mil of the population are working in the palm oil industry. Hence, the livelihood of many smallholders would be affected. We understand that FFB prices in Indonesia have plunged by 40% to 60%. Palm millers have reduced their purchases of FFB due to the export ban.

• BAL’s nucleus FFB production is expected to grow by 5% to 10% in FY22F (1QFY22: -2.5% YoY). We understand that the group’s FFB output has been rising strongly on a monthly basis since March. 2H is envisaged to account for 53% of full year’s FFB production while 1H will make up the balance 47%. So far, weather conditions have been favourable.

• BAL has storage tanks of 1-2 months of inventory.

• BAL’s cash cost of FY22F CPO production is anticipated to increase by 20% to 25% to Rp5,500/kg (RM1,612/tonne). This is mainly due to a 60% to 80% surge in fertiliser costs. The group has not faced issues securing fertiliser, having already locked in fertiliser supply for the full year and received 70% to 80% of the tender. For comparison, BAL recorded a cash cost of production of Rp4,500/kg (RM1,319/tonne) in 1QFY22.

Source: AmInvest Research - 13 May 2022