Tuesday, October 1, 2013

IJM Plantations : Hold for long-term growth (DBSV)

IJM Plantations
KLCI: 1,792.48
Price Target: 12-Month RM3.30 (Prev RM3.30)
Hold for long-term growth

• Expect 2QFY14 earnings recovery on higher FFB output
• New planting to slow down; but output is ramping up in Indonesian maturing estates
• HOLD rating maintained with RM3.34 TP

Near-term rebound. We expect IJMP’s 2QFY14 earnings to improve significantly from the lackluster 1QFY14 performance, which was dragged by higher upkeep cost, overheads and inventory reduction. We understand that the inventory reduction exercise is ongoing, as its current stock level of 14k MT is still higher than normalised level of 10k MT. However, seasonally strong harvest during the quarter is likely to drive 2QFY14 earnings growth of 135% q-o-q.

Focusing on production. IJMP is looking to add another 3k ha of new planting in Indonesia in FY14 (6.8k ha in FY13), to bring its total planted area there to 30k ha (currently 86% immature). Although IJMP still has c.20k ha of land bank, it may not be fully plantable in view of more stringent regulatory requirements. We expect IJMP’s FFB output to double to >100k MT in FY14 (from 55k MT in FY13). Earthwork for a new mill in East Kalimantan has started; and is expected to be ready in CY16. However, we understand the group’s Indonesian operations may remain in the red over the next two years, should current CPO price persist.

Strong 3-year FFB output CAGR of 18%. We expect IJMP to book strong FFB volume growths of 20% and 17% in FY14 and FY15, respectively, as most of its young trees in Indonesia will be maturing. 5MFY14 FFB production has jumped 29% y-o-y and we expect seasonally larger harvests in subsequent quarters.

HOLD rating maintained. We lowered FY14F/15F earnings by 1%/5%, mainly to account for higher cost pressures. Our DCF-derived TP remains intact at RM3.30 (WACC 9%, TG 3%), as our latest CPO price assumption has factored in a more robust outlook from CY16 onwards. Yet we believe that current FY14F PE of 25x has priced in the group’s longterm earnings growth prospects.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 26/09/13

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