Tan Sri Abdul Halim Ali said for FY19 IJM's plantation division would face a challenging year due to the volatility of the commodity prices, foreign exchange rates particularly that of the Indonesian rupiah against the US Dollar and higher borrowing costs.
KUALA LUMPUR: Affin Hwang Capital Research is cutting its FY19-21E core earnings per share (EPS) for IJM Plantations by 11%-41% and reaffirmed its sell call with a lower target price of RM1.51.
It said on Tuesday the lower EPS was mainly to take into account its lower fresh fruit bunches (FFB) and crude palm oil (CPO) production and higher production-cost assumption.
“The logistics issue at its East Kalimantan estate has delayed harvesting and if the situation were to persist, there could be major crop losses,” it said.
IJMP’s oil-palm plantation estate in East Kalimantan was adversely affected by logistics issues.
There were insufficient barges to carry the CPO to the refineries and meanwhile oil storage tanks are full.
Hence, there were days that IJMP had to stop harvesting as they were unable to process the FFB.
“We are lowering our FY19 FFB production assumption for Malaysia to 470,000 tones (earlier forecast: 500,000 tonnes), while our FFB production for Indonesia now falls to 500,000 tonnes (earlier forecast: 520,000 tonnes),” it said.
Affin Hwang Research assumed IJMP’s production costs to be higher in FY19E, mainly due to the Malaysian operations as labour costs increased and production is tracking lower than expected.
The minimum wage in Malaysia is set to rise to RM1,050 starting Jan 1, 2019 from RM1,000 in Peninsular Malaysia and RM920 in East Malaysia.
The CPO cost of production for Malaysia in FY19 could potentially climb to RM1,800-RM1,900 a tonne from c. RM1,650 in FY18, while Indonesian costs of production are likely to stay at RM2,100-RM2,200 a tonne.
“IJMP’s CPO average selling price for Malaysia was at c.RM2,325 a tonne while that for Indonesia was at c.RM2,000 in 1H FY19.
“Prices of most vegetable oils have been under pressure with the improvement in global production, including palm oil, as well as trade tensions between the US and China.
“Our CPO average selling price forecast for IJMP is at RM2,250-RM2,450 a tonne for FY19-21E, from RM2,532 in FY18,” it said.
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