IJM Plantations Bhd - Expanding landbank by 6%

News

IJM Plantation (“IJMP”) announced that it has entered into a conditional agreement* to acquire a 95% equity stake in PT Karya Bakti Sejahtera Agrotama (KBSA), which holds ~4,620 ha of greenfield land in East Kalimantan with plantation permit (Izin Usaha Perkebunan), for Rp23.8b (~RM7.7m) in cash.

The rationale for the purchase is that it is part of the long term business strategy of IJMP to expand its oil palm operations.

Comments

We are positive on this announcement. IJMP’s long term FFB growth will be more secured as this acquisition effectively increases its landbank by 6% to 82,763 ha.

The effective value of the land at RM1,754/ha is fair in our view considering that it comes with plantation permit. A recent land transaction in East Kalimantan was priced at RM541/ha in Mar-2012, however that piece of land comes with only location permit (Izin Lokasi).

IJMP should be able to fund this acquisition entirely from its internally generated fund given its FY13E strong operating cash flow of RM228m.

Outlook              

Positive on IJMP long term growth due to its consistent expansion in its plantation lands.

However, our flattish view on CPO prices and the tree stress impact in 1Q13 should keep its FY13-FY14E earnings growth unexciting at 4%-8%.

Forecast

The greenfield land purchased will need at least three years before the trees planted there starts producing FFB. FY16E earnings should increase by 3% in line with the higher FFB contribution from this land.

FY13-14E earnings of RM182m-RM196m are maintained.

Rating

Maintain MARKET PERFORM

Our flattish view on CPO prices for CY12 at RM3150/mt (-2% YoY) should keep IJMP’s share price upside limited.

Valuation            Maintaining TP of RM3.65 based on an unchanged FY13E PER of 16.0x (+0.5SD over 5-year avg. Fwd PER). This is in line with the other pure planters under our coverage with a Targeted PER range of 15.3x-16.5x.

Risks      Sustained CPO price drop below RM3,000/mt.

Source: Kenanga