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Saturday, 7 April 2012

Bumitama Agri Ltd

Bumitama Agri Ltd ("Bumitama" or "Company") is offering 297.57m shares at $0.745 each in a Global Offering with 124.8m shares for Cornerstone, 157.7m for placement and 15m shares for the public. The IPO will close on 10 April 2012 at 12pm and trading will start on 12 April.

The Company has significant palm oil plantations in Indonesia. Revenue grew from US$138m in FY2009 to US$320m in FY2011 while adjusted net profit to shareholders rose from US$24m to US$67m over the same period.  Based on the prospectus, the trees that it currently have are pretty young and only 28% has reached its peak production age. This means that in the coming years, as the existing palm trees mature and coupled with its cultivation plan of existing land bank, the production capacity will increase. This will bode well for its future growth as long as the prices of CPO and the demand for it continues to remain healthy.

 IOI corporation, one of the world's largest palm oil players with its plantations in Malaysia is a controlling shareholder in Bumi. IOI is listed in Malaysia and has a market cap of around US$11 billion. Bumi's market cap is approximately US$1 billion.

It is interesting to note that the cornerstone investors made up of mainly fund managers (Hwang, Target Asset Management, Value Partners) and Wii Pte Ltd (wholly owned by Wilmar International, another palm oil player listed in Singapore with a market cap of US$24.4 billion). Another cornerstone investor, Asdew Acquisitions is owned by Alan Wang (a deal maker previously from Kim Eng). Most of the cornerstone investors will subscribe for >5% of the global offering. It is comforting to note that Wilmar has also given its vote of confidence. However, do note that none of the cornerstone investors are subject to any lock up. The cornerstone investors will subscribe up to 124.833m shares or approximately 42% of the issue size.

Based on the enlarged share capital, the EPS for the year ended 31 Dec 2011 was US 4.94 cents and that translate to about Singapore 6.22 cents. This means at the IPO price, the Company is priced at 11.98x historical PER.  If assuming the EPS continues to grow at 25% (i didnt strip out the fair value change due to lack of information), the forward EPS will be Singapore 7.78 cents. h

Bumitama will be one of the smallest listed palm oil companies. The current comparable companies listed in Singapore and Malaysia are trading at a historical PE range of 6-16x, and a forward PE range of 10-17x. The median forward PE is 14.1x. IOI is trading at 16.8x historical and 14.8x forward. 

Assuming a lower range of 11-13x forward PE for Bumitama, the fair value will be between 86 cents to 101 cents and that represents a good upside for IPO investors. The larger public tranche of 12m shares will mean that small investors will get a better chance of getting this IPO. 

It was reported in the papers that the IPO was so well received here that its roadshow in London was cancelled.  We shall see if that is indeed true upon its listing. I will give it a 2 chilli rating. 

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