IJMPLNT (TP RM2.91 - TRADING BUY) 1QFY09 Results

27/08/08
Strong June Quarter To Be Repeated
TRADING BUY Maintain
Price RM2.50
Alvin.tai@osk.com.my
Target RM2.91

IJM Plantations reported another record quarterly profit for 1QFY09. Despite its smallish size and rising cost pressure, IJMP delivered a stronger set of June quarter numbers. Though CPO prices will be lower in the subsequent quarters, IJMP has a fair chance of repeating its June performance. Since 2004 IJMP’s September quarter production has risen between 32 – 39% (average 36%) q-o-q compared to CPO prices decline of 13% this quarter. IJMP is now trading at single digit CY09 earnings and dividend yield of 4.8% with net cash position of RM55.5m. Maintain Trading Buy.

1Q number in-line. IJMP’s annualised 1QFY09 earnings were in line with our recently downgraded forecast of RM181.4m. The RM43.8m net profit was up 2% q-o-q and achieved at average CPO price of RM3,306/tonne (March quarter average was RM3,126). Compared to MPOB average of RM3,447 for the March quarter and RM3,513 for the June quarter, IJMP’s realised price difference has narrowed from RM321/tonne to RM207/tonne. This indicates reduced forward selling resulting in average selling price increasing by 5.8% against MPOB Sabah average of 1.9%. We believe the September quarter will still be fairly good as there is still remaining forward sale at prices above RM3,000 to be delivered. Production growth will be more than enough to offset the lower CPO price.

Strong production growth. IJMP’s production for the first 7 months in CY09 grew at a very impressive rate of 22.3%. At 312,192 tonnes, IJMP’s 7 months production has been growing consistently for 5 straight years, demonstrating its well planned growth.

Maintaining forecast and target price. We have recently reduced our earnings forecast across the board to price in lower CPO price of RM3,150 per tonne and RM2,800 per tonne for CY08 and CY09 respectively. IJMP has high sensitivity to CPO price movements due to its smallish size and high production growth. On the downside however, its production growth will help to cushion the impact of falling CPO prices and rising production cost as cost is more widely spread out.