Over the past decade, palm oil prices have fluctuated significantly due to changing demand, adverse weather conditions, and geopolitical tensions. Demand shifts — especially from the food, cosmetics, and biofuel sectors — have led to sharp price movements, while the Covid-19 pandemic has further disrupted supply chains and labour availability.
However, major palm oil producer Bumitama Agri P8Z has demonstrated resilience. In addition to strong financial performance, the company has provided attractive returns to its shareholders, aligning with its mission statement. It has also been recognised as one of the top dividend payers on the Singapore Exchange S68 due to its solid fundamentals and appealing dividend yields.
For its FY2022, Bumitama recorded an all-time high dividend distribution of 7.8 cents based on a 55% payout ratio, which translated to a 14% dividend yield. For its latest FY2023, the company’s dividend distribution stood at 6.8 cents, with the payout ratio remaining robust at a 10% dividend yield. This is on the back of sound cash flow and a healthy balance sheet.
Executive director Christina Lim says that the company’s decision to distribute special dividends is based on its surplus cash and low leverage ratio, following the strong cash flow from operations in the past couple of years. This is because Bumitama remains consistent and meticulous in both its operational and financial management, on top of the elevated palm oil price.
“Our key objective is to maximise shareholder value in the long term, how to grow the business sustainably by optimising financial performance in the mid-to-long term, paving the way for increasing dividends and capital gains. We believe that shareholder value creation would best reward investors in the long term.”
Stellar performance
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Recognised for its performance and strength, Bumitama has clinched three awards at this year’s Billion Dollar Club (BDC) for the food and beverages, and food and drug retailing sector. The planter not only clinched the best growth in profit after tax over three years, weighted return on equity over three years — it is also the overall sector winner.
Lim highlights that the company has delivered a stellar financial performance over the past five years — doubling its revenue since 2019 aside from tripling its earnings within the same time frame. This, she says, is the result of a teamwork effort as it requires synergy among its 30,000 workers as well as another 30,000 indigenous farmers under the government-mandated plasma scheme to achieve the uptrend.
“At Bumitama, managing a plantation of our size is a daily challenge, but it is made possible by upholding the culture and values instilled by our founder. One such motto includes the time-tested ‘excellence through discipline’, which emphasises discipline and unity. It is applied from top management to every staff member and field worker and reinforced daily to ensure everyone shares the same foundational principles,” says Lim.
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The company is also hands-on in its management approach, constantly seeking ways to improve through research and development. Guided by its motto “work together, grow together and prosper together”, Bumitama also focuses on optimising efficiency, controlling costs and prudent management.
“Our 96-year-old founder often reminds us that as we prosper, so should our community. Operating out of mostly West and Central Kalimantan, we ensure our presence benefits everyone through initiatives in education, infrastructure and corporate social responsibility. We also strive to ensure that the crude palm oil [CPO] that we produce continues to become affordable cooking oil for the community,” Lim adds.
Accelerated financial performance in 2H2024
Can Bumitama sustain its strong dividend distribution? The company experienced a subdued first half due to muted production volumes from successive years of extreme weather and climate change, along with ongoing cost pressures from fertiliser following a previous commodity spike.
Despite the 4% setback in 2QFY2024, which ended June revenue, quarterly profitability began to spike versus 1QFY2024 figures. Bumitama’s gross profit, net profit and ebitda for 2QFY2024 were up by 19%, 61%, and 41% q-o-q, respectively, attributable to rising prices and declining cost pressure. Core profit also climbed 43% q-o-q in 2QFY2024.
Lim expects Bumitama to report accelerated financial performance in the second half of 2024 following favourable industry prospects. For one, the global oils and fats complex has tripled in consumption over the past three decades. Palm oil significantly outperformed the market, with its market share rising from 16% to 32% over the same period, while production volume has surged sixfold.
Since 2019, however, the growth rate of palm oil supply has not only slowed but a supply deficit has also been seen forming, according to two global experts. Previously, production grew at approximately 6% per year, particularly during the growth period from 2010 to 2019. Currently, the growth has decelerated to about 1% per year. Additionally, both Oil World and the US Department of Agriculture (USDA) are projecting a supply deficit among major edible oils in 2024, continuing into 2025. This anticipated deficit marks the first consecutive annual decline in palm oil stockpiles since the 1980s, according to USDA.
Demand remains strong, especially in Indonesia, which has been expanding consumption significantly.
Historically considered a discount oil, palm oil has recently traded at a premium over soybean and sunflower seed oils, underscoring the current shortage and reinforcing Bumitama’s confidence in its market outlook. Against this backdrop, Bumitama is optimistic that the elevated price environment for palm oil will persist at least into next year. “This sustained price strength, coupled with ongoing demand, is expected to drive our accelerated financial performance in the upcoming periods,” says Lim.
A key factor contributing to the projected supply deficit in palm oil is Indonesia’s increasing domestic consumption, driven by its biodiesel mandate. Since the establishment of its palm oil fund in 2015, Indonesia has consistently raised its biodiesel blending requirements.
Despite initial scepticism due to past inconsistencies in execution, between 2015 and 2024, the mandate has resulted in an increase of approximately 10 million to 11 million tonnes of palm oil demand for biodiesel. In 2023, blending volume reached 12.25 million kiloliters, 18% higher y-o-y. This year, Indonesia is targeting a blending volume of 13.41 million kiloliters, implying 9% y-o-y growth.
Lim adds that the upcoming presidential transition from Joko Widodo to Prabowo Subianto is expected to bolster this trend further. The next premier has announced plans to raise the biodiesel mandate to B40 (40% biodiesel blend) as early as January 2025, adding an extra 5% to the blending requirement. This policy is anticipated to consume an additional two million tonnes of palm oil for biodiesel production.
This surge in domestic consumption is significant, as Indonesia’s export volumes have declined from their peak levels despite being the world’s largest producer of palm oil. Consequently, the export share of Indonesia’s palm oil production has dropped from around 70% to below 60% currently. The increased domestic use, particularly for biodiesel, acts as a catalyst for maintaining elevated price levels in the global market, adds Lim.
Bumitama’s ASP stood at around IDR12,000/kg for 1HFY2024. Looking ahead, the company expects this trend to continue. Lim notes that palm kernel (PK) prices have surged even more sharply than palm oil prices during this period. In 2QFY2024, PK contributed approximately 9% to Bumitama’s total revenue.
“The price ratio of PK to CPO stayed below 50% over the past eight quarters. However, it surpassed 55% in 2QFY2024 and is currently around 70%, driven by a tight supply of lauric oils like coconut oil. We anticipate PK’s contribution to revenue will continue rising in the second half of the year,” she adds.
Cost pressures — particularly from fertilisers — are also expected to decrease in the second half of the year. Due to a lag between market price changes and Bumitama’s cost accounting, the company is now beginning to see costs subside. The company expects these reduced costs to remain stable in the upcoming quarters, which, along with strong selling prices, positions it towards accelerated financial performance.
Bumitama Berdaya
Aside from its financials, Bumitama is also mindful of sustainability, working closely with organisations like the Roundtable on Sustainable Palm Oil (RSPO) to ensure responsible practices. Late last year, the company even achieved recognition for Bumitama Biodiversity and Community Project, receiving the coveted RSPO Conservation Leadership Award.
“This achievement is a testament to our long-standing commitment to environmental stewardship, in collaboration with international experts and local stakeholders, including the regional government who acknowledged this biodiversity-rich land as a protected conservation zone,” says Lim.
The company has made a significant advancement in carbon footprint reduction — working with its partners to connect the methane capture facility in its largest mill in Riau to produce 3MWs of green electricity for the local electricity grid. This helps to reduce its carbon emissions intensity by 22.7%, below its 2016 baseline.
Bumitama has also made strides in its social endeavours, meticulously designed and executed to foster the self-reliance of the communities with whom it interacts. Within the past year, the company deployed a wide-ranging selection of initiatives under the Bumitama Berdaya (“provide support and effort”) campaign, touching upon the aspects of education, economic empowerment, ecology, health and humanitarian needs.
For example, in partnership with Akademi Komunitas Perkebunan Yogyakarta, Bumitama initiated a mentorship programme to facilitate students’ access to the Indonesian Palm Oil Plantation Fund Management Agency scholarship for aspiring talents in the palm oil industry. By 2023, a total of 438 students had benefited from the programme.
“Our focus extends beyond merely maximising profits; we embrace Bumitama’s triple bottomline approach. While we continuously strive to enhance our operations, we also prioritise sustaining our accomplishments through these local empowerment initiatives. It really embodies the ‘work together, grow together and prosper together’ motto that we held so dear,” says Lim.
