Investment Highlights

• Maintain BUY on IJM Plantations (IJMP) with an unchanged fair value of RM3.00/share. Our fair value is based on a 15% discount to IJMP’s RNAV of RM3.53/share. Our fair value of RM3.00/share implies a FY20F PE of 25.2x. We have used RNAV instead of PE to value IJMP as we believe that IJMP is a take-over target.

• Due to the depreciation of the Indonesian Rupiah against the USD, we believe that IJMP would be recording more unrealised forex losses in respect of its USD borrowings and interest expense.

• We have not factored this into IJMP’s FY19F net profit as unrealised forex loss is a non-cash item. There is a possibility that IJMP’s unrealised net forex loss may increase by more than 20% in FY19F from FY18’s RM25.9mil. IJMP’s unrealised forex loss was RM30.9mil in 1QFY19 vs. RM0.8mil in 1QFY18.

• Since the beginning of April, which is the start of IJMP’s financial year, the Indonesian Rupiah has declined by 6.6% YoY against the USD and 12.8% YoY against the MYR. IJMP’s operations in Indonesia are reported in Indonesian Rupiah (IDR). The USD loans are translated into IDR in Indonesia and then, converted from IDR to MYR when the books are consolidated in Malaysia. All of IJMP’s RM751.4mil gross borrowings are denominated in USD.

• Operationally, we are sticking to our assumption of a 10% growth in IJMP’s FY19F FFB production for now (FY18: 8.2%). IJMP’s FFB output in Malaysia is expected to pick up from October or November 2018 onwards on the back of a recovery in yields. IJMP’s FFB production shrank by 6.5% YoY in 5MFY19.

• We gather that IJMP’s FFB production in Sabah was poor in the past few months due to the lagged impact of the El Nino. In Indonesia although FFB and CPO production were robust, the refiners in East Kalimantan were not buying CPO due to insufficient storage capacity and bottleneck at the barges. We understand that this issue would be resolved in a month’s time as industry FFB production in East Kalimantan ease in September or October.

• We believe that IJMP’s production cost per tonne would increase in FY19F dragged by higher costs of fertiliser and wages. We think that IJMP’s production cost (all-in) in Malaysia would inch up from RM1,600/tonne in FY18 to RM1,700/tonne in FY19F. In Indonesia, IJMP’s production cost may rise from RM2,000/tonne in FY18 to RM2,050/tonne in FY19F.

Source: AmInvest Research - 20 Sept 2018