• Bumitama Agri Ltd (BAL) (UNRATED) reported its 1HFY18 results yesterday, which were within consensus estimates. BAL’s net profit was Rp619.8bil in 1HFY18 vs. consensus estimates of Rp1.234tril for the full year.

• However, Golden Agri’s (GGR) (UNRATED) 1HFY18 results were below consensus. GGR reported a core net profit of US$41mil in 1HFY18 compared with consensus estimates of US$156.5mil for the full year.

• GGR expects to achieve an FFB production growth of 10% in FY18F even though the group’s FFB production declined by 2% in 1HFY18. GGR reckons that 2H will be stronger, accounting for 60% of group FFB production in FY18F while 1H will make up the balance 40%.

• In contrast, BAL is more cautious in its FFB output guidance for FY18F. BAL is sticking to its estimate of a 15% to 20% increase in FFB production for FY18F even though the group’s FFB output climbed by 22.6% in 1HFY18. BAL thinks that 2H will account for 55% of group FFB production in FY18F while 1H will make up the balance 45%. GGR and BAL are not facing any issue with weather in their oil palm estates in Indonesia.

• Both companies were behind in their fertiliser application in 1HFY18. GGR had only applied 80% of its 1H fertiliser requirements in 1HFY18. BAL had only applied 46% of full-year’s requirements in 1HFY18. In 1HFY17, BAL applied 70% of its full year’s requirements. As such, both companies are expected to record higher fertiliser costs in 2HFY18, which may erode operating profit margins.

• GGR recorded a cash cost of CPO production of US$303/tonne (RM1,193/tonne) in 1HFY18, which was flat YoY. BAL’s cash cost of CPO production was Rp3,987/kg (RM1,140/tonne) in 1HFY18 vs. Rp4,805/kg (RM1,582/tonne) in 1HFY17.

• GGR expects to achieve a cash cost of CPO production of US$300/tonne in FY18F while BAL thinks that its cash cost of CPO production will increase by 5% to 10% in FY18F.

• Both companies are confident that Indonesia will follow through with its proposal to implement the B30 biodiesel policy in year 2019F. The government is expected to announce guidelines and regulations in respect of the policy in September 2018.

Source: AmInvest Research - 15 Aug 2018