Bumitama Agri's core earnings fell 24% to Rp151.5 bn

Whipped by higher transportation cost.

According to DBS, Bumitama’s 1Q13 core earnings came in at Rp151.5 bn (-24% y-o-y), representing only 15% of our initial FY estimates. 

While topline rose 2% y-o-y, cost of sales rose by 15% due to higher outside FFB purchased. Selling costs also jumped 89% y-o-y, as the group continued to incur high transportation cost for some of its CPO sales. DBS understands the group is due to lease 2 new vessels (far lower cost), which will be operational in 3Q13.

Here's more:

Bumitama had sold c.8.2k MT more CPO than it produced in 1Q13 – thus lowering its CPO stock to c.29k MT. This has been further reduced to c.23k MT as at the end of Apr13. Own CPO cash cost rose to Rp3,242/kg (from Rp2,950 in 1Q12), due to application of compound fertilizers, 5% higher fertilizer dosage, higher labour cost and headcount, partly offset by higher productivity.

As at end Mar13, c.10k ha of own estates came to maturity (16% of total own mature), while 2k ha of new planting was undertaken (FY target: 15k ha including smallholders) FY13F/14F/15F earnings cut by 13%/6%/3%.

We adjusted our selling expenses higher, ASP lower, raised fertilizer dosage and imputed additional borrowing cost from the new US$150m syndicated loans (we assume bullet payments at the end of each tranche).

These changes also resulted in 5% cut in our DCF-based TP to S$1.12 (WACC: 13%, Rf 6%, ERP 8.2% Beta 1.1 TG 3%). Our WACC estimate came down from 13.6% previously due to higher proportion of debt, which carries Kd of 3.9%.