- Maintain a BUY on IJM Plantations Bhd (IJMP) with an unchanged fair value of RM3.25/share.

- We continue to like IJMP for its pure exposure to CPO prices, well-managed plantation operations and growing volume of production coming from Indonesia.

- IJMP’s plantation division in Indonesia is forecast to record an FFB output of 50,000 to 60,000 tonnes in FY13F. This is expected to rise to more than 100,000 tonnes in FY14F.

- By FY15F, IJMP’s FFB production in Indonesia is envisaged to be almost 200,000 tonnes. Indonesia is estimated to account for 25% of IJMP’s FFB output in FY15F versus 9% in FY13F.

- The size of IJMP’s landbank in Indonesia is estimated at 71,660ha.

- Since this is below the Indonesian government’s proposed cap of 100,000ha for palm oil landbank ownership, this means that IJMP would still be able to expand in the country.

- With the proposed cap on landbank ownership, we believe that land prices in Indonesia would decline in the future. IJMP and new plantation start-ups with strong balance sheets would be in a good position to benefit from this opportunity.

- Like the other plantation companies, we believe that IJMP’s production cost per tonne would stabilise in FY14F after being hit by increases in labour and fertiliser costs in FY13F. Currently, the group’s production costs are RM1,350/tonne to RM1,400/tonne.

- Balance sheet is anticipated to swing from net cash to net debt position in FY13F due to IJMP’s expansion in Indonesia. In spite of this, net gearing is still low, forecast at 12% for FY14F.

- Dividend yield is forecast at 3% in FY14F. Dividend payout of 46% for FY14F is expected to be partly supported by an annual operating cashflow of RM180mil to RM250mil.

- We have assumed a capex of RM260mil for FY14F compared with RM280mil forecast for FY13F. New plantings are anticipated to be at 3,000ha to 5,000ha per year.

Source: AmeSecurities