After  reviewing  IJM  Plantation’s  FY14  FFB  output,  we  lower  our  FFB projections as Indonesian production has been affected by dry weather. However, we  lift  our CPO price forecasts  after  removing  the export tax discount we  previously imputed, as  the company  continues to sell all its  CPO  locally,  with  sales  discounts  to  local  refiners  reduced.  We upgrade the stock to NEUTRAL, as we believe downside has reduced.

• Dry weather hits FFB production in Indonesia. IJM  Plantation’s FY14 (FYE  March)  fresh  fruit  bunches  (FFB)  production  came  in  at  729k tonnes, below our original projections of 775k tonnes. This translates into a FFB growth of 5.4% y-o-y. We believe the lower output was due mainly to weather disruptions  at its plantation estates in East Kalimantan, which experienced  dry  weather  in  2HCY13.  We  revise  our  FY14  FFB production  numbers  downwards  accordingly,  but  maintain  our  growth projections of 10-12% for FY15-16, in view of the new areas coming into maturity over the next few years.
• Removing export  tax discount in  CPO price assumptions.  We have also  taken  the  opportunity  to  raise  our  CPO  price  assumptions  to MYR2,750/tonne for FY15 (from MYR2,585/tonne) and MYR2,850/tonne for FY16 (from MYR2,680/tonne). We had previously  imputed an export tax discount  for  IJM  Plantation’s CPO price forecasts, in view of the new export tax regime which was implemented in Malaysia in Jan 2013  (see Figure 1). W e had expected upstream players like IJM Plantation to start exporting CPO instead of selling it locally given the large discounts local refiners have been imposing on their CPO purchases. However, we note that these discounts have since narrowed considerably ( see  Figure  2),thus prompting the company to continue to sell all its CPO locally. Given this scenario, we believe we no longer need to impute a discount in our CPO price assumptions for IJM Plantation from FY15 onwards.    
• Upgrade to NEUTRAL.  All in, we reduce our FY14 earnings forecast by 6.6% but lift our FY15-16 estimates  by 5.7-6.2%.  Following our  forecast revision,  we  raise  our  TP  to  MYR3.16  (from  MYR3.05),  based  on  an unchanged  target  P/E  of  16x  CY14.  As  valuations  are  now  less prohibitive  and  downside  risks  have  reduced,  we  upgrade  our recommendation to NEUTRAL (from Sell). 

Financial Exhibits

SWOT Analysis

Company Profile
IJM Plantation is a pure upstream palm oil plantations company operating in Malaysia and Indonesia. Contributions from its Indonesian plantations are only expected to come in more significantly from FY16 (FYE March) onwards.

Recommendation Chart

Source: RHB