Bumitama’s outlook revised to stable, AA3 rating reaffirmed
KUALA LUMPUR: RAM Ratings has revised the outlook on Bumitama Agri Ltd’s long-term rating to stable, from positive.
The revision is premised on the group’s weaker-than-anticipated performance in fiscal 2019 and RAM’s expectation that its credit metrics are unlikely to be restored to levels that are appropriate for a higher rating in the near term.
Bumitama’s operating profit before depreciation and interest (OPBDIT) plunged 41.2 per cent y-o-y in the first nine months of financial year 2019 (9MFY19). While soft CPO prices were no surprise, the group’s output of fresh fruit bunches (FFB) fell 4.1 per cent – in contrast to RAM’s expectation of a full-year growth of 16 per cent.
“The unusually dry weather in Indonesia in 2019 has been affecting the group’s production, particularly at its plantations in West Kalimantan. Most of the estates in this region are cultivated on marginal land, where yields have been hit by the extended drought last year,” RAM explained in a statement.
“Looking ahead, Bumitama envisages its FFB output growth to rebound almost 20 per cent from the low base in 2019 to more normal levels, as the ill effects of the dry spell begin to dissipate.”
Beyond 2020, production volumes are envisaged to expand at mid-to-high single digits – after taking into account potential downside risks from uncertain weather conditions.
In the first 10 months of 2019, CPO prices fell 13 per cent y-o-y – the second consecutive year of double-digit decline - to an average of RM2,009 per MT.
“That said, we anticipate prices to improve to RM2,100 per MT to RM2,300 per MT this year amid slower production growth and better demand.
“With its lacklustre operating performance as well as sustained dividends and capex, Bumitama’s debt level had risen 28 per cent y-o-y to IDR6.8 tril as at end-September 2019. This had catapulted its debt-to-OPBDIT ratio to 4.6 times in 9MFY19.
“Similarly, the Group’s funds from operations debt cover (FFODC) had halved to 0.16 times.
“That said, its performance is envisaged to improve in 4Q19, buoyed by the recent uptrend in prices and a slight yield recovery, amid dissipating adverse weather effects and a seasonal uptick.
“For the entire fiscal year, the group’s debt-to-OPBDIT and FFODC ratios are likely to strengthen to a respective four times and 0.20 times.”
While Bumitama’s credit metrics will keep strengthening in line with rising production and CPO prices, they may not return to pre-2019 levels anytime soon. The group’s performance will be limited by its revised, heftier capex requirements.
Bumitama’s annual capex and other investments are projected to inflate to about 1.5 trillion rupiah in fiscal 2019 and 2020, for the rehabilitation of its poorer-yielding estates and the expansion of its milling capacity.