What Investors Should Know About Bumitama Agri Ltd’s Latest Operational Performance

Bumitama Agri Ltd (SGX: P8Z) is a palm oil producer. Its primary business activities are the cultivation of oil palm trees, the harvesting of fresh palm fruit bunches, the processing of the bunches into crude palm oil and palm kernel oil, and the sale of the oils to refineries.

The company has nearly 180,000 hectares of plantation land located in three provinces in Indonesia, namely, Central Kalimantan, West Kalimantan, and Riau.

As a palm oil producer, Bumitama Agri’s financial numbers can be heavily influenced by the unpredictable movement of crude palm oil (CPO) prices. During times when CPO prices are falling, improvements in the operational aspects of Bumitama Agri’s business can sometimes be masked.

So, I thought it would be useful to have a quick look at the operational side of things for Bumitama Agri, since it had released its 2017 third quarter results fairly recently in mid-November.

In the chart below, you can see the company’s production level for FFB (fresh fruit bunches) going back to the first quarter of 2016:

Source: Bumitama Agri 2017 third quarter earnings presentation

The next chart below shows the company’s level of production for CPO (crude palm oil) and PK (palm kernel) going back to 2016’s first quarter, and various yield numbers.

Source: Bumitama Agri 2017 third quarter earnings presentation

There are a few takeaways here:

1) We can see that in the third quarter of 2017, Bumitama Agri’s production of FFB – both internal and external – increased by 23.1% year-on-year. This resulted in CPO and PK production rising by 24.4% and 30.4%%, respectively.

2) The FFB yield (amount of FFB obtained per area of plantation) improved significantly from 3.7 tonnes/ha to 4.3 tonnes/ha. Similarly, the CPO yield improved from 0.8 tonnes/ha to 1.0 tonnes/ha.

3) For the reporting quarter, the CPO extraction rate (a 100% extraction rate means one tonne of CPO is produced from one tonne of FFB) improved year-on-year from 22.4% to 22.5%.

So, during the third quarter of 2017, Bumitama Agri’s higher CPO production  was driven by higher plantation efficiency (the FFB yield) as well as higher manufacturing efficiency (the extraction rate). These are good developments as it shows that the company is getting better in its operations.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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