-  Maintain HOLD on IJM Plantations (IJMP) with a higher fair value of RM3.60/share. Our fair value implies a PE of 18x on fully-diluted FY15F EPS.

-  IJMP’s FY14 core pre-tax profit (ex-forex changes) was in line with our expectations. The group declared a gross DPS of 7 sen in FY14 (FY13: 7 sen), which implies a yield of 2.0%.

-  IJMP’s core pre-tax profit shrank by 5.8% YoY to RM147.5mil in FY14 as a lower CPO price could not be compensated by higher CPO production. Also, EBIT margin slipped from 32.8% in FY13 to 23.7% in FY14 as the group was affected by sales of low margin CPO inventory in 1Q.

-  Plantation turnover climbed by 33% to RM647mil in FY14. Out of these, the Indonesia plantation unit accounted for 19.9% or RM129.1mil.

-  In Sabah, average CPO price achieved was RM2,385/tonne in FY14 compared with RM2,620/tonne in FY13. Average CPO price realised was RM2,579/tonne in 4QFY13 versus RM2,416/tonne in 3QFY14.

-  IJMP achieved an average CPO price of RM2,204/tonne in Indonesia in FY14 (FY13: RM2,028/tonne). This translates to a price differential of RM181/tonne between Malaysia and Indonesia.

-  Excluding the net forex loss of RM38.4mil, we believe that the Indonesia plantation unit could have been in the black in FY14. In FY13, the division chalked up a pre-tax loss of RM11.8mil.

-  IJMP’s FFB production grew 5.4% in FY14. The plantation unit in Malaysia recorded an FFB output decline of 8.0%. But in Indonesia, IJMP’s FFB production surged by 159.6% from 55,579 tonnes in FY13 to 144,274 tonnes in FY14.

-  We have forecasted IJMP’s FFB production to increase by 14.5% in FY15F, underpinned mainly by a 6,000ha improvement in mature areas. New plantings are estimated at 1,000ha in FY15F vs. 2,000ha in FY14.

-  IJMP’s net debt stood at RM267.2mil as at end-March 2014, which translates into a net gearing of 19.3%. We expect the group’s cash reserves to expand by RM209mil in FY15F, assuming full conversion of the 79.8mil warrants, which will expire on 7 Nov 2014. The exercise price of the warrants is RM2.62/share. 

Source: AmeSecurities