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Bumitama Agri Ltd’s Latest Earnings Shows Just Why It’s Such A Fast-Growing Company

Bumitama Agri Ltd (SGX: P8Z) announced its third quarter results this morning and showed just how well it is positioned for future growth.

The company is a pure upstream producer of crude palm oil (CPO). In other words, its main business lies in the cultivation of oil palm trees in its plantations and the extraction of CPO from the trees’ fresh fruit bunches (FFB). The extracted-CPO can then be sold to refiners such as Wilmar International Limited (SGX: F34) and Golden Agri-Resources Ltd (SGX: E5H). These companies will then refine the CPO to produce consumer goods such as specialty oils and cooking oils.

With these as a backdrop, let’s take a closer look at Bumitama Agri’s latest earnings.

The financials

For the nine months ended 30 September 2014, Bumitama’s revenue surged 51.5% to IDR 4,187 billion on a year-on-year basis. Its net profit was up an even more amazing 86.6% to IDR 886.5 billion for the same period. Top-line growth and better cost controls had helped Bumitama clock in that big jump in profit.

Operational highlights

From an operational standpoint, Bumitama’s production volume for FFB for the nine months ended 30 September 2014 had spiked by 22.4% to 1.908 million metric tons (MT). On top of that, the FFB yield (measured in MT per hectare) had grown by 11.7% from 12 to 13.4. Consequently, the company was able to extract more CPO (Bumitama had boosted its CPO production volume by 22.5% to 444,255 MT) and thus grow its revenue and profit.

Investors might be happy to note that even after displaying such impressive growth in production statistics, the company likely still has plenty of room to run. Of its planted nucleus acreage, only 51% can be considered to be of mature age with 25% currently being immature. Moreover, the weighted average age of the company’s trees is just 6 years and that’s below the prime production age band of 8-17 years for oil palm trees. The current characteristics that its plantations have is why the firm is well positioned for future growth and also why it can be considered as one of the fastest-growing oil palm plantation owners listed in Singapore currently.

What to look out for

The main risk for the company is still the price changes for CPO in the future. As a commodity company, Bumitama has no pricing power whatsoever over its products (i.e. CPO) and might suffer greatly if the price of CPO ever drops significantly and stays depressed for a long time.

There are also other things investors should keep an eye on. As of 30 September 2014, Bumitama’s net debt to equity ratio is 59% – that’s not a low figure. Going forward, if Bumitama is not able to generate surplus free cash flow after servicing its borrowings, the company might not be able to grow its business as easily as there’d be a lack of cash.

Foolish Summary

Bumitama is indeed a fast-growing company in a traditional commodity business. As long as the price of CPO remains stable (or even better, grows) and Bumitama’s production efficiency does not drop, Bumitama should still be able to enjoy years of growth ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.