IJM Plantations Bhd
(Nov 24, RM2.92)
Maintain buy at RM2.89 with revised target price of RM3.99 (from RM3.65): IJM Plantations (IJMP) reported strong 1HFY11 results, which made up 9% of our full-year estimates and 61% of consensus estimates. The group recorded its strongest quarter in 2QFY11 since 1QFY09 which recorded RM44 million in profits on crude palm oil (CPO) average selling price (ASP) of RM3,306 per tonne. Earnings have beaten our estimates because of stronger yields rather than higher than expected CPO ASP. Net profit in 2QFY11 was up 73% quarter-on-quarter (q-o-q) and 173% year-on-year (y-o-y). Its 1HFY11 results beat 1HFY10 numbers by 196%. For the quarter, the group achieved a CPO ASP of RM2,592 per tonne compared to the MPOB average of RM2,639 per tonne. Year-to-date, 1HFY11 CPO ASP now stands at RM2,540 per tonne compared with RM2,207 per tonne in 1HFY10.
This year, IJMP's estates are at an average age of 12 years, which is typically the peak production period of an oil palm tree life. As such, the group has bucked the industry trend and reported 26.5% improvement in fresh fruit bunches (FFB) production on a q-o-q basis and 15.8% on a y-o-y basis. We were initially of the view that the group would be impacted by lower yields in Sabah, similar to the rest of the industry, due to unfavourable weather conditions this year. However, good estate management coupled with a prime age profile has given a surge to IJMP's earnings. We view that its yields this year could clock in at 26 to 28 tonnes per hectare, above our estimates of 25 tonnes per ha. As such, we are revising our estimates up to reflect the stronger yields. We raise our FFB yield expectations for FY11 to 27 per tonne per ha (EPS +9.1%). We also raise FY12 yields to 26 tonnes per ha from 25 tonnes per ha (EPS +4.1%) and similarly for FY13 (EPS +4.2%).
We continue to rate IJMP a "buy". Our target price of RM3.65, following the earnings upgrade, is raised to RM3.99. This represents FY11 EPS pegging a PER of 24.3 times. We have derived this PER target based on +1 time standard deviation above IJMP's historical average one-year rolling forward PER. This methodology is supported by past observation — when CPO prices breached RM3,000 per tonne level in 2008, IJMP managed to trade close to its +1 time standard deviation PER of 24.3 times. In comparison, the stock is currently trading at a forward PER of 17.6 times based on FY11 EPS. As such, we view there is room for more upside, given current fundamentals supporting strong CPO prices. — ECM Libra Investment Research, Nov 24
No comments:
Post a Comment