Published on 06 Jan 2021.
RAM Ratings has reaffirmed the AA3/Stable rating of Bumitama Agri Ltd’s (Bumitama or the Group) RM2 bil Islamic MTN Sukuk Musharakah (2014/2029). The reaffirmation is premised on the Group’s performance in 1H 2020 which was largely within our expectations. Bumitama’s credit metrics, in our view, will be sustained at levels that are commensurate with its current issue rating as the potential retracement of CPO prices this year is mostly offset by stronger production.
Bumitama’s credit metrics for 1H FY Dec 2020 were largely within our expectations. Although the Group’s production of fresh fruit bunches (FFBs) was weaker than anticipated for the period (-4%), the decline was more than offset by loftier CPO prices (+27%). Consequently, the Group’s operating profit before depreciation, interest and tax (OPBDIT) surged 78% y-o-y to IDR1.07 tril in 1H fiscal 2020. Bumitama’s annualised debt to OPBDIT ratio also markedly improved to 3.11 times (FY Dec 2019: 3.99 times) while its annualised funds from operations debt cover (FFODC) rose to 0.30 times (FY Dec 2019: 0.20 times).
Bumitama’s FFB production contracted by 6% in 9M FY Dec 2020 due to the prolonged impact of dry weather conditions in 2019 and the cultivation of a portion of its crop on marginal land (e.g., sandy soils or steep terrain), where yields had been more severely affected. The unfavourable climate had also affected the output levels of the Group’s rated peers as well as Indonesia’s overall production (which declined 5% in 9M 2020). While the Group’s full-year production growth is likely to fall short of our projection of 15%, Bumitama is envisaged to maintain a strong performance for full-year fiscal 2020 on the back of continued strength in CPO prices. We expect the Group’s earnings to be largely sustained in the next couple of years, as production recovers from unfavourable weather and, for most part, counter-balances the potential retracement of CPO prices.
Bumitama’s debt level stayed fairly stable at IDR6.67 tril as at end-June 2020 after having risen 29% in fiscal 2019 (end-December 2019: IDR6.72 tril). Under RAM’s sensitised projections, its debt load is envisaged to hover around IDR6.80 tril-IDR7 tril in the next two years. Operating cashflows should largely cover the Group’s capex requirements of around IDR1.3 tril annually. Accordingly, we expect Bumitama’s debt-to-OPBDIT ratio to remain at around 3 times in fiscal 2021 and fiscal 2022, while FFODC is estimated at 0.25 times-0.30 times. These levels are supportive of its current rating.
Bumitama ranks among the top 10 listed plantation firms regionally (by planted area), with a total cultivated area of 187,679 ha in Indonesia as at end-June 2020. The issue rating reflects Bumitama’s FFB production growth prospects in view of its young tree profile as well as good plantation management. The weighted average age of its trees stood at 10.6 years as at end-June 2020. These strengths are, however, moderated by the Group’s relatively high production cost (due to sizeable purchases of FFBs from external parties), inherent vulnerability to volatile commodity prices, the challenging operating environment in Indonesia as well as rising pressure from environmental issues.
Karin Koh, CFA
(603) 3385 2508
(603) 3385 2577
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