Published on 08 January 2015
RAM Ratings has reaffirmed the rating of
Bumitama Agri Ltd’s (Bumitama or the Group) RM2.0 billion Islamic
Medium-Term Notes Sukuk Musharakah (2014/2029) at AA3/Stable. Listed in
Singapore, Bumitama is an Indonesia-based oil-palm plantation player,
managing almost 200,000 ha of land in Kalimantan and Riau, 150,000 ha of
which is planted.
The rating reflects Bumitama’s strong growth
potential, underpinned by its favourable tree-maturity profile. In view
of its current weighted-average tree age of 6 years, Bumitama is
expected to enjoy a strong uptick in production in the coming years as
its trees mature into the prime phase. The Group’s strong revenue growth
has translated into a healthy cash-generation profile and cashflow debt
coverage. For 9M FY Dec 2014, its annualised funds from operations
(FFO) debt coverage ratio stayed healthy at 0.28 times despite a heftier
debt level. During the review period, Bumitama’s operating results had
stayed within our expectation. The Group registered a fresh fruit bunch
(FFB) yield of 13.4 MT/ha in 9M FY 2014. Combined with strong oil
extraction rates (OERs) of over 23%, Bumitama’s crude palm oil (CPO)
yield of 3.1 MT/ha during that period is comparable to that of some
bigger players. Going forward, we expect the Group to maintain an FFO
debt-coverage ratio of above 0.3 times, under RAM’s stressed scenario.
These strengths are moderated by the Group’s
relatively high per unit production cost – a result of the proportion of
young trees as well as third-party FFB purchases, which account for
approximately half of its total cost. Nonetheless, as its estates
gradually move into the prime phase, the Group’s production cost (per MT
CPO) will reduce accordingly. Meanwhile, Bumitama’s gearing ratio
remains higher than that of other planters rated in the AA category.
With intensified pressure from environmentalists and purchasers
demanding certified sustainable palm oil, Bumitama has slowed down the
pace of planting to ensure that all its estates comply with the
requisite guidelines. As such, the Group’s funding requirements are
anticipated to be lower than previously expected. Taking this into
consideration, Bumitama is likely to maintain a gearing level of below
0.7 times going forward.
The rating also takes into consideration risks
inherent in the plantation sector, including volatile CPO prices which
largely dictate the bottom line of oil-palm planters. Delays in the
implementation of biodiesel mandates in Indonesia and Malaysia, the
diminished prospects of El Nino weather conditions this year, a
larger-than-expected soybean harvest and the palm oil industry entering
its peak production cycle had caused prices to slide below RM2,000/MT in
August 2014. CPO prices has since stabilised at above RM2,100/MT. With
its entire plantation in Indonesia, Bumitama is exposed to the more
challenging operating landscape in the republic. Common challenges
include complicated and lengthy negotiations with existing landowners,
disputes over land titles and less-developed infrastructure.
Nevertheless, planters in Indonesia enjoy better yields and higher OERs.
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