PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
1 March 2010
MARKET DATELINE

IJM Plantations Share Price

Fair Value
:
:
RM2.45
RM2.05
Better Margins In 3QFY03/10 Recom : Underperform
(Maintained)

Table 1 : Investment Statistics (IJMPLNT; Code: 2216) Bloomberg Ticker : IJMP MK

Net EPS Net
FYE Turnover Profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
Mar (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 491.6 123.2 19.2 (19.2) 12.7 - 1.9 10.7 14.8 cash 491.6
2010f 420.2 87.4 9.9 (48.4) 24.7 11.0 1.8 18.6 7.2 cash 420.2
2011f 506.3 121.6 13.8 39.1 17.8 16.0 1.7 14.0 9.4 cash 506.3
2012f 581.3 147.6 16.7 21.3 14.6 19.0 1.6 12.1 10.6 cash 581.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Above expectations. IJMP’s 9MFY03/10 core net profit was above our RHBRI Vs. Consensus
and consensus estimates, making up 80-83% of our and consensus Above
FY03/10 projections. The main differences were: (1) higher-than-expected In Line
CPO OER of an estimated 21.6% in 9MFY10 versus our forecasts of 21%; Below
(2) lower-than-expected production costs in 3QFY10, as estimated
Issued Cap (m shares)- fd
production costs/tonne declined 16% from 2QFY10, bringing EBIT margin 881.0
for rights and warrants
to 43.4% (from 28.9% in 2QFY10) and YTD 9MFY10 EBIT margins to
Market Cap(RMm) 2,159.3
30.3% (versus our FY10 forecasts of 28%); and (3) lower-than-expected Daily Trading Vol (m shs) 1.0
effective tax rate of 26.4% in 9MFY09 (versus our forecasts of 27%). As 52wk Price Range (RM) 1.83-2.92
expected, no dividend was declared during this quarter. Major Shareholders: (%)
♦ Core net profit fell 42% yoy on the back of a 26% drop in turnover IJM Corporation 54.6
in 9MFY10. The lower revenue was due to lower CPO and PKO prices Desa Plus S/B 7.5
achieved of RM2,205/tonne (-23% yoy from RM2,874/t) and
RM2,443/tonne (-27% yoy from RM3,361/tonne), offset slightly by higher
FYE Mar FY10 FY11 FY12
FFB production (+2% yoy). As IJMP has maintained its forward sales policy
EPS chg (%) 10.2 4.2 3.7
of selling up to a maximum of 50% of its own crop forward at any time, Var to Cons (%) (9.8) (13.8) (11.8)
which would translate to maximum forward sales of between 25-30% of
total CPO processed (as IJMP’s own crop comprises about 75% of total PE Band Chart
crop sold) and about 70-75% of crop sold on the spot market, we believe it
may not necessarily be able to benefit from the current higher CPO prices. PER = 22x
As such, we maintain our average CPO price of RM2,200/tonne for PER = 19x
PER = 16x
FY03/10. The larger drop in net profit was due to the weaker selling prices, PER = 13x
which translated to lower margins of 30.3% (from 37.1% in 9MFY09).
♦ Risks. Main risks include: (1) a convincing reversal in crude oil price trend
resulting in reversal of CPO and other vegetable oils price trend; (2)
weather abnormalities resulting in an over or under supply of vegetable
oils; 3) increased emphasis on implementing global biofuel mandates and Relative Performance To FBM KLCI
trans-fat policies; and 4) a quick global economic recovery, resulting in
higher-than-expected demand for vegetable oils.
IJM Plantations
♦ Forecasts. We raise our forecasts by 10.2% for FY10, and by 3.7-4.2%
for FY11-12, after: (1) raising our OER estimates for FY10-12 to 21.6-22% FBM KLCI
(from 21-21.8%); (2) lowering our FY10 production costs estimates
slightly by 5%, and by 1-2% for FY11-12; and (3) reduced our effective
tax rate for FY10 to 26.5% (from 27%).

♦ Recommendation. Post-earnings revision, our fair value is raised to

RM2.05 (from RM1.95). Maintain Underperform, as we believe valuations
remain stretched at current levels.
Hoe Lee Leng
(603) 92802184
Please read important disclosures at the end of this report.
hoe.lee.leng@rhb.com.my

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Table 2 : IJM Plantations Quarterly Results

FYE Mar QoQ YoY YoY

3Q09 2Q10 3Q10 9MFY09 9MFY10 Comments
(RMm) (%) (%) (%)

Turnover 101.7 89.5 120.9 35 19 412.6 304.7 (26) 23% yoy drop in CPO average
price and 27.3% drop in PKO
average price, offset by a 2%
yoy increase in FFB production

EBIT 48.9 25.8 52.4 103 7 153.1 92.4 (40)

EBIT margin 48.1 28.9 43.3 37.1 30.3 YoY margin decline due to
(%) higher costs of fertiliser and
early application of fertiliser

Net inc/(exp) (0.9) (1.1) (1.5) 38 73 (3.1) (3.3) 5

Assoc. & JVs (2.0) (0.9) 0.7 (185) (136) 3.0 0.5 (83)

EI - - - -- (2.8) Land compensation payment in

1QFY10

Pretax profit 46.0 23.9 51.6 116 12 153.0 86.8 (43) Filtered down from weaker
EBIT, lower associate
contributions and EI loss

Taxation (12.2) (6.4) (13.1) 104 8 (38.4) (22.9) (40)

Eff. rate (%) 26.4 27.0 25.4 25.1 26.4 Higher due to non-deductibility
of EI loss and other expenses

MI 0.1 (0.1) (0.0) (82) (112) 0.1 (0.2) n.m.

Net profit 34.0 17.3 38.5 122 13 114.7 63.7 (44) Filtered down from PBT and
higher effective tax rate

Core net 34.0 17.3 38.5 122 13 114.7 66.5 (42)

profit

EPS (sen) 5.3 2.7 5.2 93 (2) 17.9 9.1 (49)

Ave CPO 2,327 2,165 2,202 2 (5) 2,874 2,205 (23)

Price (RM/t)

FFB prodn (t) 172 152 186 22 8 455 464 2 Non-conducive weather in
Sabah led to 4% yoy decline in
FFB yield to 19.6t/ha

Source : Company, RHBRI estimates

Table 3. IJMP Earnings Forecasts Table 4. IJMP Forecast Assumptions

FYE Mar (RMm) FY09a FY10F FY11F FY12F FYE Mar FY10F FY11F FY12F

Turnover 491.6 420.2 506.3 581.3 FFB Produced (‘000 t) 599 617 639
Turnover growth (%) 2.8 (14.5) 20.5 14.8 CPO Production (‘000 t) 153 163 177
PKO Production (‘000 t) 24 24 25
Cost of Sales (266.3) (238.3) (272.6) (306.5) Average CPO price (RM/t) 2,200 2,550 2,700
Gross Profit 225.3 182.0 233.7 274.7

EBITDA 183.2 154.1 190.6 222.6

EBITDA margin (%) 37.3 36.7 37.7 38.3

Depreciation & (23.5) (28.5) (32.1) (31.5)

Amortisation
Net Interest (1.5) (2.0) 5.9 7.9
Associates 2.3 (2.0) (2.0) (2.0)
Exceptional items 0.0 0.0 0.0 1.0

Pretax Profit 160.5 118.8 162.4 197.1

Tax (37.4) (31.5) (40.6) (49.3)
PAT 123.1 87.3 121.8 147.8
Minorities 0.1 0.1 (0.2) (0.2)
Net Profit 123.2 87.4 121.6 147.6
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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