Investment Highlights

• We are keeping our SELL recommendation on IJM Plantations (IJMP) with an unchanged fair value of RM1.58/share. Our fair value is based on a FY21F PE of 25x.

• We believe that the improvement in IJMP’s prospects has already been reflected in the group’s share price. IJMP is currently trading at FY20F PE of 75.2x and FY21F PE of 33.9x. We estimate that for every RM100/tonne change in CPO price, IJMP’s net profit would improve by 7%. We forecast IJMP’s net profit to climb by 122.1% in FY21F.

• We visited several IJMP’s oil palm estates in North Kalimantan recently. We believe that IJMP’s plantation unit in North Kalimantan would perform better in FY21F supported by a new palm oil mill, which would be commencing operations any time soon.

• The new PT Sinergi Agro (PTS) Palm Oil Mill would help reduce IJMP’s transportation costs and improve operating profit margins in Kalimantan. Currently, IJMP sells most of its FFB in the Tanjung Selur region to third-party millers, which are located more than six hours’ drive away.

• The PTS Palm Oil Mill is expected to command a processing capacity of 60 tonnes per hour upon completion. It can be upgraded to 80 tonnes per hour. The new palm oil mill, which is estimated to cost about US$25mil, is located close to IJMP’s oil palm estates.

• We believe that IJMP’s jetty would also be completed when the group’s new palm oil mill starts operations. The jetty would allow barges and vessels to transport the CPO to the palm refineries in Balikpapan. Some of the palm refineries in Balikpapan are owned by Asian Agri and Louis Dreyfus. The jetty is located in the vicinity of IJMP’s Binai estates in North Kalimantan.

• We estimate that North Kalimantan accounts for 15% to 20% of IJMP’s FFB production. IJMP has about 10,000ha to 15,000ha of planted areas in North Kalimantan. Apart from North Kalimantan, IJMP has operations in East Kalimantan and Sumatra. Altogether, IJMP has 32,116ha of mature areas and 35,851ha of planted areas in Indonesia. Indonesia accounted for 55.5% of group FFB production in 1HFY20.

Source: AmInvest Research - 20 Dec 2019