• Bumitama Agri’s (UNRATED) (BAL) FY22 core net profit of Rp3trillion was 14% below consensus estimates of Rp3.5tril. BAL’s internal FFB production rose by 15% in FY22 while average CPO price climbed by 27% to Rp12,500/kg (RM3,705/tonne).

• BAL’s results were weak in 4QFY22 due to a decline in FFB production, a drop in sales volume and higher cost of production per tonne.

• FFB output was soft in 4QFY22 as the wet weather in Kalimantan affected harvesting. Rainfall was more than 500mm in October in some of BAL’s oil palm estates in Kalimantan. As a result, BAL did not achieve its peak production in 4QFY22. The highest level of FFB output occurred in 2QFY22 instead.

• Due to the heavy rainfall in 4QFY22, the Ministry of Maritime issued marine navigation warnings. As a result, logistics and transportation activities were disrupted. Hence, BAL’s sales volume declined in 4QFY22.

• For FY23F, BAL expects its FFB production to grow by 3% to 7% (FY22: 15%). BAL believes that quarterly production trends would normalise in FY23F. Hence, FFB production in 2HFY23 is envisaged to be larger than 1HFY23. 2H is anticipated to account for 55% of full year’s production while 1H is estimated to make up 45%.

• Cash cost of CPO production is expected to increase in FY23F due to higher costs of fertiliser and wages. BAL’s fertiliser cost is envisaged to climb by 35% to 45% in FY23F while wages are anticipated to go up by 7% to 9%.

• BAL’s cash costs of CPO production were Rp5,500/kg (RM1,630/tonne) in FY22 and Rp7,900/kg (RM2,322/tonne) in 4QFY22. In FY22, BAL’s fertiliser costs surged by 60% to 80% while wages rose by 13%. In spite of heavy rains, BAL managed to complete its fertiliser application programme for FY22.

Source: AmInvest Research - 2 Mar 2023