• D/G NEUTRAL from Buy, new SGD0.66 TP from SGD0.80, 8% upside. FY22 results disappointed. Although earnings going forward will be boosted by inventory drawdowns in 1Q23, higher unit costs and lower ASP could offset this. Bumitama Agri’s current valuation of 6x CY23F P/E is fair, within its peers’ range of 6-10x. Nevertheless, dividend yield at a 40% payout should lend support, implying 6.6% FY23F yield.

• BAL booked a 61% HoH decline in 2H22 core net profit, bringing FY22 earnings to just 84-90% of our and consensus’ FY22F earnings. The disappointment came from lower-than-expected FFB output, higher-than- expected unit costs, higher-than-expected inventory levels, and higher- than-expected effective tax rate.

• Yet to declare final DPS for FY22. Assuming it pays out 40% of its earnings, BAL could pay out an additional 4.75 SG cents, bringing total DPS to 6 SG cents, implying a 9.8% yield for FY22.

• BAL recorded an 18.4% QoQ decline in FFB output (+17.5% YoY), bringing FY22 FFB growth to 14.6% YoY, below management’s guidance of +16-18%. For FY23, management is guiding FFB growth of 3-7%, in line with our growth assumptions of 3-5% for FY23-24.

• Still higher inventory levels in Dec 2022. BAL saw a 6.5% QoQ rise in CPO ASPs in 4Q, bringing FY22 ASPs to IDR12,519/kg (+27 YoY). We highlight that, despite FY22 CPO output rising 13% YoY, CPO sales volume was only at +1.9% YoY. This was due to logistics issues related to weather- damaged roads. As such, BAL’s inventory levels rose to 4x its normal levels at end-2022 (from 2x in 3Q22). It has seen more than half of this excess inventory cleared in Jan 2023 and hopes to normalise this by end-1Q23.

• Unit costs rose 88% QoQ in 4Q22 to IDR7,900/kg due to higher fertiliser costs and lower output during the quarter. This brought FY22 costs up to IDR5,500/kg (+22% YoY), higher than management’s original guidance of +10-15%. BAL managed to apply 100% of its fertiliser requirements for FY22. Going forward, BAL is guiding for unit costs in 2023F to increase further due to higher fertiliser costs (+35-45% YoY – BAL tendered for most of its 2023 fertiliser requirements during the first nine months of 2022) as well as higher labour costs due to the annual minimum wage hike of 7-9%. We estimate unit costs would rise 15-20% in 2023F. We have therefore imputed this into our forecasts.

• We lower FY23F-24F by 7-8% after imputing higher unit costs and the latest taxes and duties applicable in Indonesia, as well as our latest in- house FX assumptions.

• NEUTRAL from Buy, with a lower SGD0.66 TP based on unchanged 7x 2023F P/E. This includes an ESG discount of 8%, given our in-house ESG score of 2.6. The stock is now trading at 6x 2023F, in line with its peers’ 6- 10x. Its dividend yield should provide support at 6.1-6.6% for FY23F-24F.

Source: RHB Research - 2 Mar 2023