Investment Highlights

• We maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM1.90/share. Our fair value for IJMP is based on a FY22F PE of 25x.
   
• We expect IJMP to return to the black in FY21F after a reported net loss of RM63.4mil in FY20. We forecast IJMP’s net profit to improve further by 7.6% in FY22F. We have assumed average CPO prices of RM2,500/tonne for IJMP in FY21F vs. RM2,156/tonne in FY20.
   
• We think that IJMP’s FFB production would rise by 4.0% in FY21F (7MFY21: 3.0%) and 7.0% in FY22F. The growth in the group’s FFB output in FY21F is expected to be driven by higher FFB yields. We estimate the group’s FFB yield to be 20.0 tonnes/ha in FY21F compared with 19.5 tonnes/ha in FY20.
   
• Indonesia is expected to drive IJMP’s FFB output in FY21F. Indonesia is anticipated to account for 50% to 60% of the group’s FY21F FFB production. Currently, IJMP has 32,793ha of mature areas in Indonesia vs. 21,576ha in Malaysia.
   
• IJMP’s oil palm trees in Indonesia are young. Hence, there is potential for enhancements in FFB yields as the oil palm trees enter the productive age bracket of eight to 15 years in the future. Average of IJMP’s oil palm trees in Indonesia is eight years old compared with 14 years in Malaysia.
   
• IJMP’s FFB output in Malaysia is not expected to be exciting in FY21F as the group plans to replant about 2,000ha of ageing oil palm trees (FY20: less than 1,000ha).
   
• We think that IJMP’s all-in cost of production in Indonesia would rise by RM25/tonne to RM50/tonne to a range of about RM2,025/tonne to RM2,050/tonne in FY21F mainly due to higher cost of wages and fertiliser.
   
• We have assumed IJMP’s capex to be RM100.0mil in FY21F vs. RM88.7mil in FY20. Most of the capex are expected to be in respect of replanting expenses in Malaysia and construction works for the KL Kepong/IJMP palm refinery. The palm refinery’s annual capacity is expected to be 330,000 tonnes upon completion. It would take about two years to be completed.

Source: AmInvest Research - 26 Jan 2021