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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