By RAM Ratings has assigned an AA3/Stable rating to Bumitama Agri Ltd's (Bumitama or the Group) proposed 15-year RM2.0 billion Sukuk Programme (the proposed Sukuk Programme). Listed in Singapore, Bumitama is an Indonesia-based oil palm plantation player. It currently owns over 200,000 ha of land in Kalimantan and Riau, of which over 140,000 ha are planted.
The rating reflects the Group's strong growth potential. With a weighted-average tree age of 5 years, Bumitama will 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, its operating cashflow (OCF) increasing at a CAGR of 12% between FY Dec 2009 and FY Dec 2012. Bumitama has registered good operating results despite its relatively short track record. Its fresh fruit bunch (FFB) yield of 18.8 MT/ha for 2012 is considered good relative to its tree-maturity profile while its superior oil extraction rates of 22%-24% reflect its operational efficiency. In line with improved production, the Group's crude palm oil (CPO) yield charted a gradual increase from 3.3 MT/ha to 4.5MT/ha - comparable to that of the larger peers. Moving forward, we expect Bumitama to maintain an OCF debt coverage ratio of 0.25 to 0.30 times, under RAM's stressed scenario.
These strengths are, however, moderated by the Group's relatively high production cost - a result of the proportion of young trees as well as its purchase of third-party FFBs, which accounts 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, we note that Bumitama's rapid expansion has been largely debt funded. Going forward, the Group is expected to raise its debt level to 5 trillion rupiah (from 4 trillion as at end-September 2013) to fund its expansion plans. Nevertheless, Bumitama's improving tree maturity profile is expected to increase its bottom line, maintaining its gearing level at around 0.7 times going forward.
The rating also takes into consideration the risks inherent in the plantation sector, including volatile CPO prices which largely dictate the bottom line of oil-palm planters. Being a commodity, the price of CPO is subject to many factors beyond the planters' control. With its entire plantation in Indonesia, Bumitama is exposed to the more challenging operating landscape in the republic. The more common challenges include complicated and lengthy negotiations with existing landowners, disputes over land titles and less developed infrastructure. Nevertheless, Indonesia is the world's leading CPO exporter.
Media contact
Robert Ching
(603) 7628 1031
robertching@ram.com.my
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