IJM Plantations Bhd (IJMP) is expected to rationalise capital expenditure which includes, among others, deferring maintenance expenses and reducing planting activities, RHB Research said.
“In a bid to ensure sufficient cash buffer, management is deferring some of the Indonesian maintenance expenses (bringing it down to RM35-40 mil, from RM50 mil originally) and reducing its replanting activities,” RHB Research analyst Hoe Lee Leng said in a note today.
IJMP was now targeting 1,500-1,800ha of replanting areas from 2,000ha originally (RM33 mil in costs), she added.
The cut would enable IJMP to service debt repayments between RM60 mil and RM100 mil for the next two years depending on crude palm oil prices on the back of operating cashflow of RM150 mil to RM200 mil per year.
Hoe maintains a buy call on the stock with an unchanged target price of RM2.05.
“We continue to like IJM Plantations for its prime age profile, which is on the verge of a turnaround in Indonesia, as yields improve and costs moderate,” she said.
IJMP is currently trading at a P/BV trough of 1.1x, a multiple it traded during the global financial crisis, Hoe added.
But the planter expected growth to moderate in the coming quarters as the dry spell in Lampung, Indonesia, would take its toll with a projected loss of 10% from 130,000 tonne output in financial year 2020.
“All in, management is keeping its 5% growth guidance unchanged and we maintain our +4.8% forecasts for FY21,” she said.
As for a dearth of workers, Hoe said she did not see any significant impact yet.
“Management revealed that the shortage of labour in Peninsular Malaysia, has no significant impact in its operations currently, as the peak harvesting season has yet to arrive.”
But the gap in labour requirements could reach 20% during peak crop season (3QFY21), “which may then have some impact,” Hoe added, but “as long as borders between Malaysia and Indonesia remain closed, workers would not be allowed to return home”.
IJMP’s shares opened unchanged at RM1.62, giving it a market capitalisation of RM1.43 bil. – July 10, 2020
