RAM reaffirms Bumitama’s AA3/Positive rating
KUALA LUMPUR: RAM Ratings has reaffirmed the AA3/ Positive rating of Bumitama Agri Ltd’s (Bumitama) RM2.0 billion Islamic MTN Sukuk Musharakah (2014/2029).
The reaffirmation reflects the continued resilience of the Group’s credit metrics in the first nine months of financial year 2018 (9MFY18) while its operating performance has been improving, despite a challenging market characterised by weaker average crude palm oil (CPO) selling prices.
RAM said 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 per cent of which comprises planted estates.
“Bumitama’s top line edged up 1.7 per cent year on year (y-o-y) in 9MFY18, underpinned by higher FFB and CPO production in spite of declining CPO selling prices. The group’s average CPO selling price in the first 10 months of 2018 was 18 per cent 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 weightedaverage 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 per cent y-o-y in 9MFY18.
As at the end-September 2018, the group’s gearing ratio had risen to 0.61 times following additional loans for workingcapital 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. Despite the weaker metrics, RAM saw that the hroup’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.”