IJM Plantations - Indonesia story still intact Buy

- Maintain a BUY on IJM Plantations Bhd (IJMP) with an unchanged fair value of RM3.65/share, which implies a PE of 16x on FY14F basic EPS.

- We have revised IJMP’s FY13F earnings forecast downwards by 6% to account for lower CPO production and price.  

- We affirm our view that FY13F would be a watershed year for IJMP, with core net profit forecast to fall by 10%. 

- We expect the group’s profits to recover by 21% in FY14F underpinned by a rebound in palm oil production and price. 

- We estimate IJMP’s FFB production to slide by 3% in FY13F after a blistering 16.6% expansion in FY12. 

- In FY14F, we forecast the group’s FFB production to recover by 16.9%. 

- IJMP’s FFB output in Malaysia is envisaged to decline by 7% in FY13F. However, this would be partly cushioned by a 105% increase in the group’s FFB production in Indonesia.

- Indonesia is estimated to account for 6%-8% of IJMP’s FFB production in FY13F and 13% in FY14F.

- We reckon that IJMP’s plantation operations in Indonesia would contribute more significantly in FY14F as its palm oil mill would rely less on FFB sourced from external parties. 

- With a two-fold jump in FFB output in Indonesia in FY14F, about 20% to 23% of the palm oil mill’s FFB would come from IJMP’s own estates versus a negligible amount in FY13F.  

- IJMP’s new palm oil mill in Kalimantan is expected to be commissioned in September or October. The palm oil mill, which cost about RM70mil, would command capacity of 70 tonnes/hour. 

- IJMP’s balance sheet is envisaged to remain healthy. Net cash stood at RM97mil as at end-March 2012.  

- Underpinned by recurring cashflows, we expect IJMP to continue to return almost half of its net profits in the form of dividends to its shareholders. We forecast grossdividend yields of 2.7% for FY13F and 3.2% for FY14F.   

Source: AmeSecurities