• Bumitama Agri Ltd (BAL) (UNRATED) has released its 1QFY23 results. The group’s results were 13% below consensus estimates. BAL’s core net profit fell by 51% YoY to Rp429bil in 1QFY23, dragged by lower palm product prices and higher costs. Also, BAL’s FFB production slid by 13% YoY in 1QFY23.

• Although the weather has become drier at BAL’s oil palm estates in Kalimantan, rainfall is still sufficient. So far this year, rainfall has been higher than 150mm per month. Hence, BAL is confident of achieving an FFB production growth of 3%-7% in FY23F (1QFY23: -13% YoY).

• BAL’s FFB yields were weak in 1QFY23 after the high productivity in 1QFY22. The group expects its FFB production to be stronger in 2HFY23. 2H is envisaged to account for 55% of FFB output for the full year while 1H makes up 45%.

• BAL thinks that its cash cost could increase to Rp6,600/kg (RM1,903/tonne) in FY23F from Rp5,500/kg (RM1,630/tonne) in FY22. Fertiliser costs are estimated to climb by 35% to 45% in FY23F due to the high cost of inventory purchased in FY22. Also, fuel costs are anticipated to rise by 8% in FY23F.

• BAL’s cash cost increased by 50% YoY to Rp6,700/kg (RM1,932/tonne) in 1QFY23. Fertiliser costs surged by 40% to 60% YoY in 1QFY23, dragged by higher prices and volume of application. Fuel costs also rose by 30% YoY in 1QFY23.

• BAL applied 25%-30% of its full year fertiliser requirements in 1QFY23. In 2QFY23, the group would be applying 30%-35% of its fertiliser requirements for the full year. BAL plans to frontload its fertiliser application in 1HFY23 in anticipation of dry weather in 2HFY23.

• BAL will be carrying out its 3rd fertiliser tender soon. So far, the group has secured 70% of its full year fertiliser supply. The group’s fertiliser costs are expected to be lower in 2HFY23 vs. 1HFY23, in line with the fall in global fertiliser prices.

• BAL is currently trading at a consensus FY23F PE of 6x vs. its 5-year average of 8x.

Source: AmInvest Research - 15 May 2023