This article first appeared in The Edge Financial Daily on May 3, 2017 - May 9, 2017
IJM Plantations Bhd
(April 28, RM3.08)
Maintain neutral with an unchanged target price of RM3.53: We participated in IJM Plantations Bhd’s “Walk With The CEO” programme recently and came away feeling positive on the company’s long-term outlook. During the three-day event, we visited IJM Plantations’ estates, mills, seed research centre, nursery and amenities for its workers.
Key takeaways from the visit are: Fresh fruit bunch (FFB) growth will resume in financial year 2018 (FY18). IJM Plantations registered an FFB growth of 2% in FY17 (ending March) to 862,000 tonnes. The low FFB growth was caused by tree stress (due to El Nino) which affected its production throughout the first nine months of FY17.
Looking ahead, Joseph Tek (as reported by Bloomberg) expects the company’s FY18 FFB volume to improve to 900,000 tonnes (+4% year-on-year [y-o-y]) with a better recovery to be seen in FY19 (+11% y-o-y to one million tonnes).
As IJM Plantations started its Indonesian estate planting progressively in FY09, we estimate that its age profile should have reached six years old. This is a good age profile as oil palm trees tend to have a high growth in FFB volume until they reach the peak at 10 years old.
Hence, we think that its Indonesian estates should provide a strong FFB growth for the next five years. We were briefed on many sustainability efforts done by the company. Since 2009, IJM Plantations has been certified with the Malaysian Palm Oil Board’s Code of Practices.
The company is currently pursuing Malaysian Sustainable Palm Oil certification and the International Sustainability and Carbon Certification in a phased approach for its Malaysian operations.
For its Indonesian operations, IJM Plantations’ focus will be on the mandatory Indonesian Sustainable Palm Oil certification. — MIDF Research, May 2
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