‘High costs likely to cap IJM Plantation near-term upside’

KUALA LUMPUR: IJM Plantation Bhd’s expectation that the average crude palm oil (CPO) price will reach RM2,400 per tonne this year is in line with analysts’ current forecast.

Nevertheless, TA Securities Holdings Bhd has trimmed its financial year (FY) 2019-2021 earnings forecasts by 2.6 per cent to 27.5 per cent after factoring in higher operating and finance costs.

The research house said IJM had trimmed its FY19 fresh fruit bunch (FFB) production guidance from one million tonnes to less than one million tonnes due to some lagged impacts from El Nino this year and a barge issue in East Kalimantan.

It said IJM expects the FFB production to exceed one million tonnes only in FY 2020, underpinned by an increase in planted areas in Indonesia and yield recovery in Malaysia and Indonesia’s estates from the effects of El-Nino.

TA Securities said for the nine month of FY19, FFB production stood at 727,000, up 2.8 per cent year-on-year.

“We remain conservative and expect the FFB production to be 960,000 tonnes for FY19. We also project total FFB to hit one million tonnes in FY20,” it said in its report.

The research firm has maintained a “sell” call on IJM with a lower target price of RM1.04 per share.

“While we are positive on IJM’s long-term growth prospects, we believe the near-term upside will be capped by high finance costs, high operating costs and potential risk of low FFB production,” it said.

TA Securities also said there was no change to the production cost guidance for FY19.

IJM expects the cost of production for Malaysia and Indonesia to increase to RM1,800RM1,900 per tonne, versus RM1,650 per tonne in FY18 and RM2,100-RM2,200 per tonne, respectively, in FY19.