Bumitama Agri, a major palm oil producer, has a rich history in the global plantation industry, tracing its roots to 1915. It was founded in 1996 after acquiring a 17,500ha land concession in Central Kalimantan, Borneo. Since then, it has expanded significantly, managing over 187,000ha as of FY2022 ended December 2022.
Despite challenges in recent years, Bumitama has remained resilient, benefiting from high production and increased palm oil demand driven by soaring prices. Even at the peak of the pandemic in 2021, it crossed the IDR10 trillion revenue mark. By 2022, Bumitama’s revenue hit a new high of IDR15.8 trillion ($1.36 billion).
It is no wonder that the company clinched the Centurion Club 2023’s best growth in profit after tax (PAT) over a three-year period in the F&B sector.
Executive director Christina Lim notes that during the gruelling past few years, the company was not spared the mobility and productivity-related issues during the pandemic lockdown, fertiliser supply scarcity, as well as extreme weather conditions brought about by the “triple-dip” effect of three straight years of La Nina. These challenges were addressed expeditiously, driven by proactive measures and the deployment of initiatives that turn opportunity into results, says Christina.
The company suppressed the Covid-19 spread by upholding protocols and swiftly inoculating workers as soon as vaccines became available. With calculated foresight, the company was also able to safeguard its operations with supporting systems that are firmly executed, from infrastructure and workforce management to procurement and logistics.
“It was also very important for us to be proactive as there were a lot of cost pressures, especially given the high fertiliser prices we saw in the two years ending in 2022 due to supply constraints. Thankfully, we secured fertiliser supply ahead of time to apply it as planned, despite growing scarcity with disrupted supply in major producing countries,” says Christina.
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Focusing on shareholder value creation
The company plans to sustain its strong financial and return on equity performance by focusing on long-term creation of shareholder value instead of maximising short-term profit gains. While attaining highest productivity remains a key strategy to becoming the most efficient producer, the company is also mindful that social risk is critical to the sustainability of its business, says Christina.
Bumitama has adopted a “beyond compliance” approach to maintain balance between profit-making and achieving environmental, sustainability and governance (ESG) goals. For instance, the company is using organic waste from its operations to replenish soil nutrients on its plantations, enacting a highly granular manuring regime adjusted to the conditions of different plots across its estates.
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“We combine these measures with ongoing water management initiatives and comprehensive enhancements to our estates — all key elements in our intensification strategy. With all this, we could conduct manufacturing according to the initial plan, even during the unusually lengthy period of heavy rains from the triple-dip La Nina of 2020 to 2022 while attaining record high productivity of 4.8 tonnes of crude palm oil [CPO] per hectare in FY2022,” says Christina.
As at June, Bumitama’s consolidated total planted area of 187,000ha consists of 131,000ha of nucleus estates and 56,000 hectares of plasma estates (smallholders), spread across Central Kalimantan, West Kalimantan and Riau — a considerable amount of the company’s planted surface is strategically located in areas of good precipitation and temperature well suited for oil palm cultivation. Its processing capacity stands at 6.39 million tonnes per annum.
For its 2QFY2023 ended June, Bumitama reported revenue, net profit and ebitda improvements q-o-q. Revenue grew 9% to IDR3.9 trillion, net profit grew 77% to IDR760 billion, while ebitda grew 99% to IDR1.37 trillion.
The company believes the quarter was an inflection point as the q-o-q recovery in production and productivity coupled with minimised fluctuations paved the way for a higher scale of economy.
Harvesting activities gathered pace within Bumitama estates amid the mini peak cycle period, with production volume of CPO soaring 34% q-o-q to reach 314,759 tonnes in 2QFY2023. This is supported by a 29% rise in fresh fruit bunches (FFB) yield and 0.5 percentage point increase in oil extraction rates (OER), improving from 22.1% in 1QFY2023 to 22.6% in 2QFY2023.
Bumitama is increasingly confident that the low cycle has passed and production proportion in the second half of this year will be the bigger share of the year. The company believes the robust performance in the 2QFY2023 period could serve as the transition towards a more supportive environment, after having gone through soft performance in the previous two quarters.
Following this, analysts continue to be positive on Bumitama. UOB Kay Hian analysts Leow Huey Chuen and Jacquelyn Yow Hui Li note that Bumitama’s 1HFY2023 results beat their expectations and that of consensus expectations, thanks to its higher CPO average selling price (ASP) and CPO production. The analysts also point out that the strong FFB yield and OER improvement was mainly due to better agro management that led to better productivity.
They also note that Bumitama’s CPO ASP usually lags by about two months due to timing and delivery. Hence, the company’s 2QFY2023 CPO ASP outperformed its peers.
Meanwhile, in her Oct 20 report, OCBC Investment Research analyst Ada Lim says Bumitama is well positioned to capitalise on supportive long-term industry fundamentals despite the current softness in CPO prices. Its superior productivity, high-quality plantations and continued focus on intensification rather than expansion place it well to maintain above-industry average yields and to capture greater market share, she adds. The analyst is looking favourably upon the specialised upstream player’s growth profile pushing forward.
Analysts are also positive on the plantation sector over the next year, on expectations of CPO prices ranging higher amid tiger supply and rising weather risks to RM4,200 ($1,203) to RM4,500 per tonne in 2024.
In its effort to strive for higher yields and extraction rates, Bumitama has continuously invested in research and development, technology, as well as best agricultural practices in oil palm cultivation, says Christina. “We continue to explore and progressively apply new technologies to assist our precision agronomy initiatives. We are confident these initiatives will deliver major advantages to the best-in-class agronomic practices which we have been engaging with discipline,” she adds.
Sustainability in motion
The company had also put a lot of effort in sustainability practices. Its sustainability-oriented initiatives started about a decade ago in 2014 when it piloted the assessment of peat and forest, pioneering the High Carbon Stock assessments which distinguishes forest areas for protection from degraded lands with low carbon and biodiversity values.
The following year, Bumitama established a sustainability policy based on “No Deforestation, No Peat and No Exploitation”, followed by the launch of its Bumitama Biodiversity and Community Project (BBCP), a landscape-based conservation project to create a wildlife biodiversity migration corridor between the local forests and national parks.
Bumitama’s smallholder partners are an essential part of its sustainability agenda, with 30% allocation of total planted area. Recognising the importance of identifying all production sources to assess environmental and social risks within its supply chains, the company has prioritised enhancing its traceability-to-plantation data in recent years. As at December 2022, Bumitama had achieved 99.6% traceability, planning to attain its 100% target by this year.
Last year also saw Bumitama launching an updated version of its sustainability policy, which builds on its inaugural policy launched in 2015. This new policy addresses increased expectations from its stakeholders and challenges created by accelerating climate change and other emerging sustainability issues.
Bumitama remains optimistic towards inorganic growth, with ample capacity to seize opportunities when it arises due to its low gearing ratio which is at around 20% to 30% today. Christina says the company is continually looking for ways to grow the business sustainably through increasing sales, earnings and free cash flow, paving the way for increasing dividends and capital gains, further highlighting shareholder value creation.
“We are here for the long term. We have a rich, almost century-long history and we wish to carry on with our pursuit for excellence and hopefully we do this for centuries more,” Christina adds.
