Bumitama Agri Ltd’s Latest Earnings: No Sign of Recovery

Bumitama Agri Ltd  (SGX: P8Z), one of the major palm oil producers listed in Singapore, announced its fiscal third-quarter results earlier this morning.

Over the course of the year, most palm oil producers, including Bumitama Agri, had experienced a decline in their earnings due to the weak demand for palm oil globally. As judged from Bumitama Agri’s latest results, it seems a recovery for the company is still far.

Financial highlights

For the first nine months of 2015, Bumitama Agri saw a 2.2% decline in revenue from IDR 4.2 trillion to IDR 4.1 trillion. Due to a 13.9% year-on-year drop in average crude palm oil prices, the firm’s gross profit fell by 28.5% to just IDR 1.3 trillion.

Together with higher selling expenses and losses from associate companies, Bumitama Agri suffered a 35% drop in net profit to IDR 674.3 billion. According to the earnings release, Bumitama Agri’s associate companies had experienced low yields in their newly mature plantations and foreign exchange losses on their US-dollar-denominated borrowings.

In terms of quarterly performance, Bumitama Agri’s revenue for the three months ended 30 September 2015 had slid by 13.7% to IDR 1.18 trillion from the same period a year ago. Lower crude palm oil prices were also a factor in the steep 32.9% fall in quarterly gross profit to IDR 409.4 million.

The bottom-line did not fare any better as profit for the quarter sank by 34.6% year-on-year to IDR 221.6 million.

On the balance sheet front, Bumitama Agri had increased its short-term debt significantly in 2015 as compared to the end of 2014. Consequently, Bumitama Agri’s net debt to equity ratio had increased from 55.8% at 31 December 2014 to 75.6% at 30 September 2015.

It’s worth noting that there will be a change in the firm’s accounting which will take place next year. Bumitama Agri’s bear plants (palm trees) will be reclassified as “property, plant and equipment” instead of “biological assets” going forward. This may impact the firm’s overall asset and equity base.

From the company’s own estimation, its equity might decrease by 23% to just IDR 5.5 trillion. This means that its debt to equity ratio would be significantly higher under the new accounting standard – that’s not good news for the firm at all.

Business highlights

Operationally, Bumitama Agri has managed to grow in 2015. Total fresh fruit bunches (FFB) production had increased by 19% year-on-year to 2.27 million MT (metric ton) for the first three-quarters of 2015. Meanwhile, the production of crude palm oil (CPO) had also climbed by 17.2% to 520,713 MT over the same period.

However, there were areas where no improvement was seen. For instance, the FFB yield for the first nine months of 2015 had dropped from 13.4 MT/hectare in the year-ago period to just 12.7 MT/hectare. The CPO extraction rate is another, as the number had dipped slightly to 23.1% from 23.3%.

As a palm oil producer, the firm’s plantation age is important  to track as it can give insight on future production levels. Bumitama Agri’s weighted average age of its plantation is 6.9 years as at 1 January 2015 – that is considered to be a young age,

Foolish Summary

Bumitama Agri’s results show that commodity producer is still highly dependent on prevailing market conditions for its commodity even if it’s a company that has been managing its operations well and growing its production levels.

Without a strong recovery in the demand for palm oil and a rebound in its price, there might be little Bumitama Agri can do to improve its situation.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.