Founded in 1996 and listed on SGX in 2012, Bumitama Agri has grown to be a leading oil palm plantation operator and producer of crude palm oil and palm kernel in Indonesia. The company seeks continuous improvement by introducing innovative technologies, such as drones or apps, into its operations and constantly reviewing and benchmarking performance against industry leaders.
1. What is Bumitama Agri’s business and what are some key business segments?
Bumitama Agri is well-positioned in the highly lucrative palm oil industry. Apart from being one of the few remaining pure upstream producers in the industry, about 34% of its almost 190,000ha of palm oil plantations are under the plasma scheme, well beyond the government-mandated level of 20%, highlighting our triple-bottom-line management approach.
The balance between the nucleus, which refers to our own estates, and plasma, the smallholders’ estates managed by us, plantations allows Bumitama Agri to navigate market challenges while upholding sustainable and responsible practices through active contributions to the community development and social welfare of surrounding indigenous communities.
Despite various challenges that clouded the industry in the past five years, including extreme weather conditions, high volatility in commodity prices, and rising cost pressures that followed the Black Sea conflict, we have managed to book record-high performance across key financial metrics, paving the way to a surge in dividend distribution.
Between 2019 and 2023, our ebitda margin improved by seven percentage points to 30%, while free cash flow spiked more than seven-fold to reach IDR2.1 trillion ($174 million), while the gearing ratio decreased substantially to 0.2 times.
2. Please share some industry trends to watch and how Bumitama Agri is positioned for these developments
Last year’s net decline in global inventory of major vegetable oils is expected to continue this year due to lingering supply-related constraints from unfavourable weather. As a result, palm oil price is expected to remain elevated this year. This represents more upside opportunities for Bumitama Agri, particularly due to its industry-leading productivity performance.
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3. Bumitama Agri’s operational performance is highly dependent on weather conditions. What are some strategies to mitigate against these risks?
Our focus towards achieving greater productivity includes resilience amid unfavourable weather conditions, which have increased in frequency. Ongoing initiatives to optimise productivity, such as our water management system, have helped retain water during extreme drought and drain excess water during high rainfall seasons.
Other productivity-related initiatives, such as the more frequent use of organic fertilisers and leguminous cover crops, are also beneficial in extreme weather conditions. The main purpose is to improve soil condition by maintaining a relatively stable moisture level.
Additionally, continued efforts to take in more external fresh fruit bunches (FFB) from independent smallholders to sustain high utilisation of mills have helped to mitigate falling output and maintain higher economies of scale. External FFB contribution has risen from 27% of total FFB processed in 2020 to 35% in 9MFY2024 ended Sept 30, 2024.
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4. Given the recent extreme weather conditions, how will this affect the crude palm oil (CPO) and palm kernel (PK) output for 2025 and beyond?
Apart from extreme weather conditions in recent years, the slowdown of output growth in the palm oil industry since 2019 is due to a combined effect of the absence of significant expansions in the past decade and declining industry yield figures from the peak between 2008 and 2011. As a result, the rate of growth in global palm oil output between 2019 and 2024 has slowed down to a CAGR of 1%.
Today, industry experts expect some output growth this year over last year’s decline. Similarly, we at Bumitama Agri expect production and productivity to improve this year. We typically release the official guidance between February and May.
Contrary to the industry’s declining palm oil yield, Bumitama Agri has consistently stayed on the path towards achieving higher yields and extraction rates by investing in research and development, technology, and best practices in the cultivation of oil palm. These efforts have made us one of the most efficient producers in the industry, boasting a CPO yield of 4.7 tonnes per ha in 2023.
5. Can you share more about the recent financial performance of Bumitama Agri and what the key drivers are?
Bumitama Agri recorded a 2% y-o-y dip in revenue in 9MFY2024, which amounted to IDR11.58 trillion. Both net profit and ebitda also declined by 30% and 22%, respectively, due to lower output, which resulted in higher unit costs.
In line with the muted production, Oilworld — a Europe-based analyst specialising in global edible oils and fats — confirmed the “surprisingly low volume” occurrence across Indonesia-based palm oil growers in their monthly November report publication. The delayed negative effect from successive extreme weather conditions in past years was cited as a likely reason.
Despite the soft performance in 9MFY2024, Bumitama Agri’s management remains confident that last year would end on a high note as the company is likely to record accelerated financial performance in the fourth quarter. The combined effect of an upturn in the production cycle and rising palm oil prices, which have persisted till September, is expected to boost financial performance in the final quarter.
6. Does Bumitama Agri have any dividend policy?
Our policy is to distribute up to a 40% payout ratio. However, in the past two years, we have also included special dividends in the distribution, totalling a 55% payout ratio each year due to surplus cash and low leverage ratio following the robust free cash flow periods in recent years. As a result, our annual dividend yield in the past two years reached double digits.
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7. How does Bumitama Agri remain competitive?
Being in the commodity business, we are mindful to be ready to tackle any economic and environmental challenges that come our way. Hence, we aim to be the most efficient producer in the industry by achieving optimal levels of operational productivity and keeping tight control on costs and prudent capital management while ensuring sustainability initiatives are updated with the changing dynamics of our business. To get there, we are mindful of balancing the needs of all stakeholders.
We have also invested in research and development, technology, and best practices in the cultivation of oil palm, making us one of the most efficient producers in the industry.
8. Given the focus on sustainable agriculture, how has Bumitama Agri committed to its sustainability goals?
Our commitment towards sustainability dates back a decade ago when we took a major stride by being one of the first palm oil growers to implement a sustainability policy based on “no deforestation, no peat, no exploitation” or NDPE.
Today, we manage some 40,000ha of conservation areas under our operational permits in collaboration with local communities and biodiversity experts on ecosystem restoration, including 130ha manually restored and 800ha through drone seeding. Our key purpose is to safeguard critical orangutan habitats and wildlife migration corridors. This approach was recognised by the 2023 RSPO (Roundtable on Sustainable Palm Oil) Excellence Award in Conservation Leadership for integrating plantations and conservation areas into a holistic landscape approach.
Through initiatives like the Sekolah Desa Berdaya, a community sustainable agriculture training centre, we actively engage local communities in promoting integrated farming practices and offering sustainable livelihood alternatives, such as forest patrolling and reforestation using agroforestry methods. The main idea is to de-link income generation from deforestation.
This mindset extends to plantation and production operations, integrating carbon-centric practices with regenerative agriculture. Organic waste and by-products, such as biogas methane and biocharcoal derived from empty fruit bunches (EFB), generate electricity and enrich the soil, reducing dependence on chemical fertilisers and enhancing soil health. Biological pest control strategies, like barn owls, have reduced rodenticide usage by 90%, demonstrating our commitment to minimising chemical inputs.
By integrating conservation, carbon management, and innovative farming practices, Bumitama Agri showcases a sustainable model where biodiversity, oil palm plantations, and resilient communities coexist.
9. Why should investors take a closer look at Bumitama Agri?
Despite short-term fluctuations, palm oil prices have remained elevated in the past few years, which is considerably higher than in the pre-pandemic years due to structurally different industry dynamics.
Aside from an accelerated financial performance expectation in 4Q2024, Bumitama Agri is also a good proxy of the palm oil industry due to its pure upstream nature and leading industry productivity.
10. What is Bumitama Agri’s value proposition to its shareholders and potential investors? What do you think investors have overlooked?
Bumitama Agri is regarded as a good dividend stock in SGX’s market due to its bullish track record in recent years.
Industry analysts covering Bumitama Agri — including the most recent coverage by Bloomberg palm oil specialist in mid-January — expect ample free cash flow to sustain high dividends, given the already low net gearing ratio of 0.14 as of last September. Additionally, the current valuation of Bumitama Agri is still undemanding, relatively less than the average of its industry peers.
10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies
Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials. This report contains factual commentary from the company’s management and is based on publicly announced information from the company. For more, visit sgx.com/research.
For more company information, visit bumitama-agri.com
Raphael Lim is an associate director of FinLit and research at the Singapore Exchange Group
