Published on 09 Jan 2019.
RAM Ratings has reaffirmed the AA3/Positive rating of Bumitama Agri Ltd’s (the Group) RM2.0 billion Islamic MTN Sukuk Musharakah (2014/2029). The reaffirmation reflects the continued resilience of the Group’s credit metrics in 9M FY Dec 2018 while its operating performance has been improving, despite a challenging market characterised by weaker average crude palm oil (CPO) selling prices. Bumitama’s outlook remains positive as the increasing fresh fruit bunch (FFB) and CPO yields from the Group’s young estates will be able to alleviate the impact of weak CPO prices, thereby sustaining its operating performance.
Bumitama is an oil-palm plantation group based in Indonesia, ranking among the top 10 listed plantation companies in Asia by total planted area. The Group currently owns more than 233,000 ha of land, mostly in Kalimantan, about 79% of which comprises planted estates.
Bumitama’s top line edged up 1.7% y-o-y in 9M FY Dec 2018, underpinned by higher FFB and CPO production (+27.5% and +28.8% y-o-y, respectively) in spite of declining CPO selling prices. The Group’s average CPO selling price in the first 10 months of 2018 was 18% lower y-o-y at about RM2,338 per MT. Moving forward, its FFB output growth is expected to be supported by its expanding mature planted areas and young tree profile. As at end-September 2018, its trees had a weighted-average age of about 8.9 years, which is considered young. Driven by its ongoing efforts to optimise its fertiliser use and the gradual reduction of third-party FFB purchases amid improving internal FFB production, Bumitama’s operating profit before depreciation, interest and tax (OPBDIT) was lifted 6.9% y-o-y in 9M FY Dec 2018.
As at end-September 2018, the Group’s gearing ratio had risen to 0.61 times (end-December 2017: 0.56 times) following additional loans for working-capital purposes, coupled by the erosion of its reserves due to exchange-rate differences arising from the translation of its USD-denominated debts. In tandem with its higher debt level, Bumitama’s funds from operations debt coverage (FFODC) thinned to 0.35 times (end-September 2017: 0.41 times). Despite the weaker metrics, the Group’s financial profile is still deemed strong. We expect the Group’s debt load to lighten in the next few years as it intends to be more conservative in expanding its plantations amid increasingly stringent policies in Indonesia.
We have maintained the positive outlook on Bumitama’s long-term rating as we expect the Group’s financial metrics to stay resilient and within our upward rating triggers over the next few years, based on our sensitised projections. That said, CPO prices recently averaged around RM2,100 per MT and could remain weak in the near term, hampered by high inventory levels. As such, our earlier projected average CPO price of RM2,300–RM2,500 per MT in 2019 may be revised downwards if prices remain suppressed at the current low levels. Although we do not envisage CPO prices to languish at such a low point in the long run, weaker-than-expected prices in the near term will weigh on Bumitama’s financial metrics. All said, however, an upgrade may be warranted by the next review if the Group’s metrics can be sustained at its present levels.
Yip Chee Meng
(603) 7628 1187
(603) 7628 1162
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Ratings on Bumitama Agri Ltd