Investment Highlights

• We maintain SELL on IJM Plantations (IJMP) with an unchanged fair value of RM1.13/share. Our fair value is based on an FY21F PE of 18x. IJMP is currently trading at a FY21F PE of 22.0x.

• IJMP held a conference call yesterday. IJMP’s estate and milling operations have not been significantly affected by Malaysia’s MCO (movement control order) so far. The group has approvals from the federal and Sabah state governments to continue operating.

• Hence, there were no disruptions to IJMP’s estate and milling activities in Sabah. Also, the group did not face difficulties delivering its CPO to the two refineries in Sandakan. Refineries owned by IOI Corporation and Wilmar International in Sandakan, continued to take delivery of IJMP’s CPO. The only issue was bringing in spare parts and some consumer goods to the oil palm estates in Sabah as suppliers are not operating.

• As there was no lockdown on the palm industry in Indonesia, IJMP’s operations continued as usual. There is also no shortage of storage tanks or vessels so far in Indonesia. A silver lining from the MCO in Malaysia and Indonesia is that estate workers are confined to the oil palm estates and they cannot venture out.

• IJMP’s FFB production growth is expected to be 5% in FY21F vs. 9% in FY20. Currently, we are assuming a FFB production growth of 7% for IJMP in FY21F.

• IJMP’s FFB output growth in FY21F is expected to be underpinned mainly by an increase in mature areas of 500ha and higher FFB yields in Indonesia. FFB output in Malaysia is anticipated to be flat in FY21F as 2,000ha ageing oil palm trees may be taken out for replanting (FY20: 700ha).

• IJMP’s all-in production costs per tonne are estimated to remain at RM1,800 in Malaysia and RM2,000 in Indonesia in FY21F. Economies of scale from a higher tonnage of CPO production is expected to compensate for higher costs of fertiliser and wages in FY21F.

• IJMP’s fertiliser costs may increase by 7% to 8% in FY21F as the group increases dosage of fertiliser application in estates which lack nutrients. Cost of wages is envisaged to rise in FY21F due to a higher minimum wage and Socso payments for workers in Malaysia and Indonesia.

Source: AmInvest Research - 24 Apr 2020