IJM Plantations : Attractive P/CF valuation BUY

STOCK FOCUS OF THE DAY

IJM Plantations : Attractive P/CF valuation           BUY

Maintain BUY on IJM Plantations (IJMP) with an unchanged fair value of RM3.90/share, which is based on a FY3/18F PE of 27x. IJMP is currently trading at FYE3/18F PE of 22.9x compared with Genting Plantations’ basic FYE12/17F PE of 25.9x and TSH Resources’ FYE12/17F PE of 22.6x. Although IJMP’s PE is high, the group’s valuation from a cash perspective is attractive. IJMP’s P/CF are undemanding at 13.0x for FY17F, 13.9x for FY18F and 11.6x for FY19F. EV/EBITDA multiples are 16.5x for FY17F and 13.6x for FY18F.

We forecast IJMP’s cash reserves to climb in the future as capex declines. We think that IJMP would complete planting oil palm on the balance 2,000ha of land in Indonesia by FY19F. New plantings are estimated to be 700ha in FY17F and 1,000ha in FY18F. Although the group may have to fork out cash for the palm refinery in East Kalimantan, we reckon that the cash outlay would not be large as IJMP only owns 20% of the refinery. We estimate the cost of the palm refinery to be more than RM330mil over two years.

QUICK TAKE

Plantation Sector : Newsflow for week 3 to 6 December                NEUTRAL

ECONOMIC HIGHLIGHTS

Malaysia : External headwinds remain a key concern

US : 2-3 rate hikes expected in 2017

NEWS HIGHLIGHTS

AirAsia : Fernandes: AirAsia thrives on competition

Property Sector : IWCity plans mixed development on Iskandar land

Banking Sector : Prospects of banking sector likely to improve