- Maintain BUY on IJM Plantations (IJMP) with an unchanged fair value of RM3.90/share. Our fair value implies a PE of 27x on IJMP’s FY17F EPS.

- IJMP’s FY15 core results (excluding unrealised forex loss of RM42.5mil on US$ borrowings) were within our expectations and consensus estimates. The group’s EBIT fell by 8.1% from RM153.1mil in FY14 to RM140.6mil in FY14 as CPO price declined. We believe that fertiliser costs were also higher in FY15.

- Group FFB production expanded by 18.2% YoY to 862,456 tonnes in FY15 driven by the Indonesia unit. Comparing 4QFY15 against 3QFY15, IJMP’s FFB output fell by 28.4%.

- IJMP’s FFB production in Indonesia surged by 89.3% in FY15 underpinned by an increase in mature areas. In Malaysia, the group’s FFB output was flat in FY15. Indonesia accounted for 31.7% of IJMP’s FFB production in FY15 compared with 19.8% in FY14. We are assuming that IJMP’s FFB production would grow by 9% to 10% in FY16F.

- Core pre-tax profit of the Indonesia plantation division fell from RM32.7mil in FY14 to RM8.2mil in FY15. The unit’s revenue strengthened by 49.0% YoY to RM192.3mil in FY15.

- We estimate production cost of the Indonesia division at more than RM2,000/tonne in FY15. This is expected to decline in FY16F due to economies of scale underpinned by increased CPO production.

- IJMP’s Indonesia plantation division recorded an average CPO price of RM2,140/tonne in FY15 compared with RM2,204/tonne in FY14.

- In Malaysia, IJMP’s average CPO price realised shrank by 4.0% from RM2,385/tonne in FY14 to RM2,289/tonne in FY15. The difference between IJMP’s CPO prices in Malaysia and Indonesia was RM149/tonne in FY15 compared with RM181/tonne in FY14.

- IJMP’s balance sheet is healthy as reflected in the low net gearing of 21.1% as at end-March 2015. The group’s gross cash reserves rose from RM344mil as at end-FY14 to RM375.4mil as at end-FY15 mainly due to proceeds from the conversion of its warrants, which expired in November 2014.

Source: AmeSecurities Research - 28 May 2015