Investment Highlights

• We maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM1.70/share. Our fair value for IJMP is based on an FY21F PE of 27x.

• IJMP held a conference call yesterday. The group’s FFB production is expected to improve by 5.0% in FY21F (2MFY21: 16.5% YoY) vs. 8.7% in FY20. We have assumed an FFB output growth of 4.0% for IJMP in FY21F.

• IJMP’s FFB output growth of 5.0% in FY21F is expected to be driven by Indonesia. The increase in mature areas in Indonesia is estimated to be 1,000ha in FY21F.

• FFB production in Malaysia is envisaged to be flat in FY21F due to the replanting of ageing oil palm trees and dry weather in Sugut, Sabah. IJMP is planning to replant about 1,500 to 1,800ha of ageing oil palm trees in Malaysia in FY21F compared with 1,300ha in FY19.

• IJMP’s FFB growth in Indonesia could be higher in FY21F if not for the dry weather in Lampung, Sumatra. Lampung experienced drought last year and as such, average FFB yield of IJMP’s oil palm estates in Lampung may decline to 15 tonnes/ha in FY21F from the usual 20 to 24 tonnes/ha. Lampung accounts for about 5% to 10% of IJMP’s FFB production. Overall, Indonesia made up 56.2% of IJMP’s FFB output in FY20.

• Currently, there are no issues with weather although it is a bit dry at IJMP’s oil palm estates in Sabah and wet in East Kalimantan. Also, there is no haze in Indonesia yet. We gather that there were some fires at West Kalimantan but these have been one-off so far.

• IJMP hopes to maintain all-in production costs of RM1,800/tonne in Malaysia and RM2,000/tonne in Indonesia in FY21F. Cost efficiencies from a higher volume of CPO production are expected to be offset by a rise in the costs of wages and fertiliser in FY21F.

• Fertiliser costs are envisaged to increase by 4% to 5% in FY21F. Cost of wages is estimated to rise in FY21F due to higher minimum wage and payments in respect of a Socso-like contribution in Indonesia.

• We have assumed a capex of RM100mil for IJMP in FY21F. Out of these, about half are for replanting and maintenance expenditure in Malaysia while another half are in respect of the palm refinery and maintenance capex in Indonesia.

Source: AmInvest Research - 10 Jul 2020