Maintain Sell on IJM Plantation - UOBKH

IJM Plantations –  Malaysia
Share Price RM2.39 Fair Price RM2.40 Upside +0.4%

 Unexciting growth prospects 

Stock Impact
•  Good company but unexciting prospects.  Despite IJM Plantations’ (IJMP) able management and our view that the company would continue to benefit from higher crude palm oil (CPO) prices, we do not foresee much excitement in IJMP’s stock price movements due to unexciting fresh fruit bunch (FFB) growth prospects in the short term. 
However, all that may change if the aggressive new planting scheme is effectively implemented and starts to bear fruit in FY13.
•  Low single-digit production growth.   IJMP’s Malaysian estates should achieve a 5-7% increase in FFB production resulting from stable yield of 25.5tonnes/ha from its mature tree age profile (average age: 13 years old).
•  Banking on Indonesia planting to return to days of  double-digit production growth by FY13.   IJMP expects to further expand its Indonesian presence with roughly 8,000ha of new plantings p.a. with the target of planting most of its Kalimantan landbank within 3-4 years.

Earnings Revision/Risk
• We are revising our earnings forecasts downward to RM127.1m (-2.3%), RM128.6m (-8.0%) and RM133.4m (-3.7%) for FY11, FY12 and FY13  respectively as a result of rising costs of production, increasing costs of the new planting scheme, along with a reduction of yields in FY13 due to the maturing of a significant portion of Indonesian estates, which would suppress FFB yields.

•  Maintain SELL with a fair price of RM2.40 based on 15x FY11F PE and an entry price of RM1.96.  IJMP is a well-managed pure planter but we maintain our SELL call due to expensive current valuation.

Share Price Catalyst

• Successful implementation of IJMP’s aggressive new planting scheme.


by UOBKayHian