IJM PLANTATIONS BHD

Target price: RM2.33

UOB KAY HIAN said IJM Plantations’ (IJMP) share price is expected to continue to trade sideways in the near term as there is no strong catalyst to push up the share price.

It noted that since June 11, IJMP’s share price has been trending in the range of RM2.15-RM2.25.

The brokerage has maintained its “hold” call on IJMP, with an unchanged target price of RM2.33.

UOB Kay Hian has also maintained its estimated fresh fruit bunch (FFB) production growth for IJMP at 8.9% year-on-year (y-o-y) for the financial year (FY) ending March 31, 2019.

Despite the lower y-o-y growth in the two months of FY19, it anticipates a pick-up in FFB production in the second to third quarter onwards.

UOB Kay Hian says IJMP’s management has indicated that FFB production from Malaysia operations will pick up in August and peak in September, while FFB production from Indonesia is likely to register a peak in November.

Thus, the first quarter of FY19 earnings are likely to be weaker yoy due to weaker FFB production and CPO prices, it added.

UOB Kay Hian said IJMP’s Malaysian operations are expected to contribute about half a million tonnes in FFB production in FY19, while its Indonesian operations’ FFB production is expected to increase by 50,00070,000 tonnes, or 11%-15%, to 510,000530,000 tonnes in FY19.

The brokerage’s forecast of FFB produc- tion growth at 8.9% y-o-y to one million tonnes in FY19 is in line with management expectations.

If IJMP’s FY19 FFB production misses market expectations or if there is higher-than-expected cost of production, this will further drag down the share price due to earnings disappointment, according to UOB Kay Hian.

The previous cycle that saw a sharp decline in share price was in 2008, when share price slumped 183% in five months due to earnings weakness (down 40% yearon-year).