HLIB Research raises target price for IJM Plantations to RM1.78, maintains 'buy' call

KUALA LUMPUR (July 10): Hong Leong Investment Bank Research (HLIB Research) maintains its "buy" call for IJM Plantations Bhd (IJMP) with a slightly higher target price (TP) of RM1.78 from RM1.71 previously, citing the company’s improved earnings prospects, young age profile of estates and prudent management.

“Despite having clocked in a respectable year-on-year (y-o-y) fresh fruit bunch (FFB) output growth of 18.8% in 1QFY21 (the first quarter ended June 30, 2020), management is still maintaining its FFB output growth target of 5% for FY21 as it expects productivity to slow in 2HFY21 (the second half) [due to dry weather condition],” said HLIB analyst Chye Wen Fei.

Output growth will be driven by around 300ha of newly-matured area and a higher yield in Indonesia which will more than offset lower harvesting areas in Sabah due to replanting activities and a slight decline in FFB output contribution from Lampung due to dry weather, she said.

“Management is hopeful to contain its unit production cost achieved last year as it expects higher labour cost (arising from minimum wage hikes in both Indonesia and Malaysia) and higher fertiliser prices to be more than mitigated by FFB output growth.” she added.

IJMP achieved crude palm oil (CPO) production cost of RM1,800/metric ton for its Malaysian operations and RM2,000/metric ton for its Indonesian operations.

She said IJMP is not overly concerned about the labour shortfall in Malaysia for now as it is hopeful that the labour shortage issue will be addressed before or when the peak production cycle kicks in, which is expected to be by October.

“Management has shared that it may revise its replanting target of 2,000ha to 1,500-1,800ha for FY21 as it is taking a more prudent approach in conserving its cash flow amid uncertainties.

“We raise our FY21-23 core net profit forecasts by 2.1%, 4.3% and 4.6% respectively, mainly to account for slightly higher FFB output assumptions [in line with management’s guidance].” she added.

“Post earnings revisions, we raise our target price by 4.1% to RM1.78 based on 20 times revised FY22 core EPS (earnings per share) of 8.9 sen.” she said, adding that at its current share price, IJMP is trading at FY21 and FY22 price-earnings ratios of 23 times and 18.2 times respectively.

At 10.45am, IJMP shares remained unchanged at RM1.62, maintaining its market capitalisation of RM1.427 billion.

Though the stock has rebounded from a low of RM1.03 on March 19, it has fallen 31.36% from RM2.36 year to date.