(Financials are in Indonesian Rupiah ‘IDR’; 1 SG$ = IDR 11,069)
BMA is the sixth-largest palm oil producer in Indonesia by plantation area (~188,000 hectares). It generated revenues from crude palm oil (87%) and palm kernels (13%). Palm oil is used in cooking, cosmetics, and detergents.
Sales to two multi-industry conglomerates contributed 78.8% of FY22 revenues.
The industry is cyclical and sensitive to palm oil prices, which rose significantly from May 2020 to June 2022 and fell sharply since then. Current prices are still above the peaks prior to 2021. Offsetting this are higher fuel and fertilizer costs (which haven’t abated to date).
Despite the volatility, BMA has generated respectable gross margins of ~30% and operating margins of ~23% (well above its peers) over the cycle.
BMA reported FY22 revenues of IDR 15.8tn (FY20: IDR 9.1tn), ebitda of IDR 5.6tn (FY20: IDR 2.6tn), and net profits of IDR 3.4tn (FY20: IDR 1.4tn). FY22 and FY21 witnessed abnormally high palm oil prices – therefore, FY20 is used for comparison.
Average ebitda over the cycle was ~IDR 3.7tn adjusted for the increase in asset-base. Deducting depreciation, taxes, and non-controlling interests (~17%) results in ~1.8tn of normal after-tax operating earnings.
The balance sheet reveals modest net debt of IDR 2.6tn, which is <1x ebitda and 21% of tangible equity of IDR 12.3tn.
Borrowings consists of Islamic bonds (IDR 1.4tn) due in 2026 in Malaysian Ringgit (MYR) paying 4.2%; and bank facilities (IDR 2tn) in US$ at floating rates (3.1% in FY22) – renewable at BMA’s option for 24 months. Currency and interest risks seem well-managed via derivatives with MYR swapped for US$, and floating rates swapped for fixed - resulting in gains when interest rates rose.
Tangible equity is mostly comprised of bearer plants (IDR 7.8tn), PPE (IDR 4.6tn), inventories (IDR 2.3tn), and plasma receivables (IDR 1.8tn).
Bearer plants are plantations at cost depreciated straight-line over 25 years once they mature.
Inventories relative to cost-of-sales are somewhat high due to higher fertilizer costs - but not beyond past levels.
Plasma receivables are advances to plantation farmers, which are reduced by harvests collected or bank financing – this has reduced considerably over the last three years.
The equity is selling for ~IDR 11tn, which is ~6x normal earnings and 91% of tangible equity.
BMA sells at a 40% discount to peers on earnings despite better capital efficiency.
In addition to generating higher production and yields than the industry, ~96% of its plantations are close to peak productivity.
Considering the competitive position of BMA, the stock appears undervalued on an absolute and relative basis.
