Highlights

• FFB output growth continues. Total FFB production grew by 14.5% to 792k tonnes in FY03/15. While the lagged impact of drought will likely weigh down on FFB production at its Sabah estates, we still expect IJMP’s FFB output to grow further, by 13.7% and 8.8% in FY03/16 and FY03/17 respectively, mainly underpinned by the young age profile of its plantation land bank in Indonesia (of which there will be another 6,000-7,000 ha of planted land bank reaching maturity over the next 2 years).

• New planting to slow down. New planting to taper off (from an average of 4,100ha over the last 4 years), as IJMP is left with only circa 4,000 ha of unplanted land bank, and management is currently focusing on optimizing yield and efficiency at its current planted land bank.

• Flattish production cost guidance. Production cost is guided to remain flattish in FY03/16, at RM1,400- 1,500/tonne, as it has earlier on locked in its fertilizer requirement (both in volume and RM).

• Management guided a total capex of RM300-350m for the next 2 years, with bulk of the capex on the remaining new planting development works in Indonesia, as well as construction of a palm oil mill. Earnings

Forecasts

• Maintained. Ceteris paribus, every RM100/mt reduction in our average CPO price assumption will result in a 10% reduce in our FY03/16 earnings forecast

Catalysts

• Higher-than-expected FFB output growth; and

• CPO prices strengthen further.

Risks

• Weaker-than-expected FFB output;
• Escalating CPO production cost; and
• Weaker-than-expected recovery in edible oil demand and prices.

Rating

HOLD

Positives

• (1) Rising FFB contribution from estates in Indonesia; and (2) Healthy balance sheet.

Negatives

• Unattractive valuations.

Valuation

Maintain TP of RM3.52 (based on unchanged 17x FY03/17 EPS of 20.7 sen) and HOLD recommendation. While we like IJMP for its strong FFB output growth in the coming years and healthy balance sheet, we believe further upside to its share price will likely be capped by its pricey valuations as well as the current weak CPO price sentiment.

Source: Hong Leong Investment Bank Research - 22 Sep 2015