PETALING JAYA: The potential slow recovery of crops will make IJM Plantations Bhd’s near-term fresh fruit bunches (FFB) growth prospects appear to be unexciting.
With the crude palm oil (CPO) price upside being capped, Kenanga Research expected the upstream agri-business group’s near-term prospects to remain tepid stemming from the flat FFB growth guidance for financial year 2022 (FY22).
In its latest report on IJM Plantations, the research unit said the planter’s production cost for FY22 should creep higher toward RM2,100 per tonne given the anticipated higher cost of fertiliser by 7%-10% year-on-year.
“We estimate the core net profit (CNP) in the fourth quarter of FY21 of about RM28mil as the higher CPO price is negated by lower FFB output.
“The CNP estimate for FY22 is cut by 8%, ” the research unit added.
Kenanga Research is maintaining its “market perform” call on IJM Plantations, but with a lower target price of RM1.80 from RM1.95 previously.
The stock price closed three sen lower at RM1.70 yesterday,
At current price, Kenanga Research said IJM Plantations is traded at calendar year 2021’s (CY21) estimated price earnings ratio and price-to-book value of 11% and 43% premium respectively to its peers.
“This offers limited upside in our opinion, ” added the research unit.
The risks to Kenanga Research’s call include higher or lower-than-expected CPO price realised, severe labour shortage, and a precipitous rise or decline in labour, fertiliser and transportation costs.
On the CPO price upside capped, the research unit said: “Given Indonesia’s biodiesel levy and export tax structure, we think the realised CPO price for the region will be capped at around RM2,600 per tonne.
“This has been confirmed by IJM Plantations’ management.
“The group also has undertaken forward sales of 10%-15% of its production in Malaysia on a 12-month rolling basis, ” it said.
While no official CPO price forecast was provided, Kenanga Research said IJM Plantations’ management believed that elements of speculation are present at current elevated levels, and CPO price should correct in line with peak crop season.
“However, we differ as we think CPO price has peaked and should correct in the near-term.
“Our sector CPO price forecast is RM3,000 per tonne. The FY21 CPO production cost is expected to remain stable with Malaysia at about RM1,800 per tonne, and Indonesia at around RM2,000 per tonne, ” the research unit pointed out.
According to its website, IJM Plantations aspires to be a leading regional plantation group.
Its oil palm plantations span 60,981ha in Sabah, East Kalimantan and Sumatra.
The relatively young palm profile of its Indonesian operations, places the group in a favourable position to capitalise on significant production growth opportunities as the oil palm trees reach prime age.
The group has six palm oil mills - four in Malaysia and two in Indonesia - which are strategically located in close proximity to its plantations.