STOCK FOCUS OF THE DAY
IJM Plantations : Efficiencies to drive long-term
growth
BUY
We are upgrading IJM Plantations (IJMP) from HOLD to BUY
with an unchanged fair value of RM3.40/share. Since reaching a high of RM3.421
on 6 February this year, IJMP's share price has dropped by 12.3%. Our fair
value of RM3.40/share for IJMP implies a FYE3/19F PE of 20x. IJMP is currently
trading at a FYE3/19F PE of 18.0x vs. Genting Plantations' (GenP) fully diluted
FYE12/18F PE of 24.8x and TSH Resources' FYE12/18F PE of 17.9x.
We like IJMP for its pure exposure to CPO prices, strong FFB
production growth in Indonesia and sound management. In the long term, we
believe that IJMP would be a cash cow as capex for new plantings in Indonesia
drop. As such, the group would be able to pay more dividends. Instead of new
plantings of oil palm, we believe that IJMP would be concentrating on
extracting efficiencies from its plantations in Indonesia in the coming few
years. The group is expected to take its time with new plantings as the terrain
is challenging and the approval process is slow. IJMP has plantable areas of
3,000ha left in Indonesia.
Free cash flow per share is estimated to improve from 0.3
sen in FY18F to 5.8 sen in FY19F on the back of a decline in capex. We have
assumed that capex would ease from RM150mil in FY18F to RM140mil in FY19F.
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NEUTRAL
QUICK TAKE
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NEUTRAL
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