• Bumitama Agri Ltd (BAL) (UNRATED) has released its 3QFY23 results. BAL’s annualised net profit was 25% above consensus as the cost of production declined. Also, there was an additional drawdown of 11,000 tonnes of CPO inventory in 3QFY23. Consensus had forecast a net profit of Rp2.2trillion for BAL in FY23E. BAL’s net profit slumped by 27.2% YoY to Rp2.1trillion in 9MFY23 dragged by lower palm product prices.

• The group’s average CPO price realised fell by 12% YoY to Rp11,400/kg (RM3,409/tonne) in 9MFY23 while FFB production (nucleus) shrank by 7%. However, BAL’s CPO production only slid by a smaller 2% YoY in 9MFY23 as FFB sourced from third party suppliers rose by 6%.

• BAL expects its FFB output to increase by 0% to 5% in FY23E. The group reckons that its FFB production had already peaked in July 2023. Hence, FFB production in 4Q2023 would be the same or slightly lower than 3QFY23.

• The impact of El Nino on BAL’s FY24F FFB yield is expected to be minimal. The group’s oil palm estates in Kalimantan only experienced one month of insufficient rainfall this year. Rainfall in the month of August was less than 100mm. The current El Nino phenomenon has not been as severe as 2016 or 2019.

• BAL’s cash costs of CPO production was Rp4,100/kg (RM1,247/tonne) in 3QFY23 and Rp4,900/kg (RM1,465/tonne) in 9MFY23. The group’s unit cost of production of Rp4,100/kg in 3QFY23 was lower than Rp4,400/kg (RM1,339/tonne) in 2QFY23 as CPO production expanded. BAL’s cost of production in FY23E may be flat or slightly higher than FY22’s Rp5,500/kg (RM1,630/tonne).

• BAL is in the midst of sourcing its fertiliser supply for FY24F. Fertiliser costs may be 40% to 50% YoY lower. This is in line with the decline in global prices. In 9MFY23, BAL applied 60% to 65% of its full year fertiliser programme.

• BAL is presently trading at a FY24F PE of 6x, which is below its 5-year average of 8x.

Source: AmInvest Research - 15 Nov 2023