Thursday, April 13, 2017

We are downgrading IJM Plantations (IJMP) from BUY to HOLD with a lower fair value of RM3.40/share vs. RM3.90/share previously. Our fair value implies a FY18F PE of 22x. Our PE assumption of 22x for IJMP is 12% below our PE assumption of 25x used to derive Kuala Lumpur Kepong's fair value of RM25.70/share. We have reduced our PE assumption on IJMP's fair value from 27x to 22x as CPO prices are falling. Hence, there is no catalyst for a valuatio

STOCK FOCUS OF THE DAY
IJM Plantations : Dragged by falling CPO prices but remains a long-term cash cow                              HOLD

We are downgrading IJM Plantations (IJMP) from BUY to HOLD with a lower fair value of RM3.40/share vs. RM3.90/share previously. Our fair value implies a FY18F PE of 22x. Our PE assumption of 22x for IJMP is 12% below our PE assumption of 25x used to derive Kuala Lumpur Kepong's fair value of RM25.70/share. We have reduced our PE assumption on IJMP's fair value from 27x to 22x as CPO prices are falling. Hence, there is no catalyst for a valuation re-rating. IJMP's long-term earnings growth would depend on enhancements in operational efficiencies and CPO price as the group has completed plantings on almost all of its landbank in Indonesia. IJMP has plantable land of only 2,000ha left in the country. We have raised IJMP's FY18F net profit by 7% to account for higher FFB production growth, which is expected to translate into lower production cost per tonne and improved operating profit margin.

We forecast IJMP's FFB output to grow by 14% in FY18F compared with a 1.7% decline in FY16 and a 1.7% increase in FY17. IJMP's FFB yields are expected to improve in FY18F after being affected by the lagged impact of El Nino in FY17. Previously, we assumed that IJMP's FFB production would expand by 12% in FY18F. Indonesia is expected to drive IJMP's FFB production in FY18F. We believe that IJMP's FFB production in Indonesia would climb by 20% in FY18F. Indonesia is anticipated to account for almost 40% of IJMP's FFB production in FY18F vs. 33% in FY17F.  IJMP’s capex is expected to be RM180mil in FY18F before falling to RM140mil in FY19F. As such, IJMP's free cash flows are estimated to be 12.0 sen per share in FY19F vs. 5.9 sen per share in FY18F. On the back of rising cash flow, we reckon that there is potential for higher dividend payments in the future. Currently, we assume gross DPS of 5 sen in FY17F and 7 sen in FY18F, which translate into yields of 1.6% and 2.2% respectively.

Others :
Heineken Malaysia : Fine showing but elevated valuations           HOLD

STOCKS ON RADAR
Lion Industries Corporation, Malayan Flour Mills, Digistar Corporation, Systech

ECONOMIC HIGHLIGHT
China : Expect PBOC to raise short-term interest rates again

NEWS HIGHLIGHTS
Banking Sector : Malaysian banks to see 6%-7% loan growth this year - Moody’s
Logistics Sector : Another PDZ-owned container ship arrested
Building Materials Sector : Lion Industries sells steel plant to Yinson to set off debts



DISCLAIMER:
The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.



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