IJM Plantations’ Lower Costs to Prop Up Future Earnings, Say Analysts

IJM Plantations Bhd (IJMP) is expected to register enhanced earnings in the near term due to increased yield in its crude palm oil (CPO) production volume as well as lower production costs, say analysts.

IJMP had seen a rise of 8.7% in output for its 2020 financial year, which ended March 31, attributed to the growing number of mature palm trees at its Indonesian estate.

“This was driven by a 5.2% rise in Malaysian output and an 11.6% rise in Indonesian output. Fresh fruit bunch (FFB) output during 2MFY21 is even stronger with a 16.5% increase year-on-year,” said RHB analyst Hoe Lee Leng.

Hoe added that this came in even higher than IJMP management’s guidance of up to 5% in growth, as well as RHB’s projection of a 4% growth.

“However, management expects this growth to moderate in 2H21F, due to seasonality,” he said.

This led to an increased revenue of RM739.1 mil for IJMP’s 2020 financial year, which was also bolstered by higher CPO prices. However, a net loss of RM63.4 mil was posted, which was attributed to a foreign exchange loss of RM87.1 mil.

“This is due to the drastic devaluation of the rupiah against the US dollar and Japanese yen denominated borrowings, and fair value gain on the CPO pricing swap of RM7.9 mil,” said MIDF Research analyst Khoo Zhen Ye.

RHB maintained a buy call with a higher target price of RM2.05, up from RM1.95, with the belief that IJMP is on its way to a sustainable turnaround, given the improving age profile of its trees.

Affin Hwang Capital upgraded the stock to a buy call, with a higher target price of RM1.95 from a previous RM1.90, with the expectation that the higher FFB and CPO production will carry the stock.

However, MIDF Research maintains a neutral call, with a lower target price of RM1.70, from a previous RM1.86. The research house attributed this to a potential resurgence of the Covid-19 outbreak, as well as the possibility of dampened demand for CPO, due to the weakening economic conditions in major palm oil-consuming countries such as India, Indonesia, and the European Union, which will in turn put pressure on CPO prices.

At 12.05pm, IJMP’s shares were last done at RM1.57, down 9 sen, with 32,500 shares traded. – June 29, 2020