Monday, August 7, 2017

Axiata Group : New Celcom prepaid options may not alter trajectory BUY Automobile : Tripping the light electric

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.

Axiata Group : New Celcom prepaid options may not alter trajectory      BUY
Automobile  : Tripping the light electric                                                                  NEUTRAL

Plantation Sector : News flow for week 31 July - 4 August                             NEUTRAL

Malaysia : Can trade support the growth momentum?

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