Indonesian operations turning around

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: MIDF

Price Call: HOLD

Target Price: 3.78

9MFY15: Slightly below our expectation

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: JF APEX

Price Call: HOLD

Target Price: 3.42

9MFY15 Results Within Our Expectation

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: TA

Price Call: BUY

Target Price: 4.26

Young trees from Indonesia to support future growth

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: MIDF

Price Call: BUY

Target Price: 3.62

Plantation - OVERWEIGHT - Tree stress effect may have just starte

Stock Name: SIME
Company Name: SIME DARBY BHD

Research House: KENANGA

Price Call: BUY

Target Price: 11.60

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: KENANGA

Price Call: BUY

Target Price: 4.25

Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD

Research House: KENANGA

Price Call: BUY

Target Price: 7.75

Stock Name: UMCCA
Company Name: UNITED MALACCA BHD

Research House: KENANGA

Price Call: BUY

Target Price: 8.00

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD

Research House: KENANGA

Price Call: HOLD

Target Price: 23.60

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD

Research House: KENANGA

Price Call: HOLD

Target Price: 5.60

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD

Research House: KENANGA

Price Call: HOLD

Target Price: 9.90

Malaysia's CPO inventory level for Mar-12 was reported at1.96m mt or 2% lower than the consensus estimate of 2.00m mt. It was also 6%below our estimate of 2.08m mt. The key surprise was the better-than-expectedexports growth of 11% MoM to 1.34m mt (5% above the consensus and ourexpectation of 1.28m mt). Judging from the CPO production severe YoY decline of14% to 1.21m mt in Mar-12, we believe that oil palm trees may have just enteredtheir tree stress period. Typically, CPO production will be flat or declineduring its tree stress period. Among the key CPO consumers, the highest exportgrowth was noticed in Pakistan (+125% MoM to 78k mt), Europe (+63% MoM to 174kmt) and India (+11% MoM to 120k mt). The latest USDA WASDE report was bullishto CPO prices as it reaffirmed the global soybean oil shortage for the 2011/12season. The global soybean oil inventory was cut by 0.17m mt or 6.2% from itsprevious forecast to only 2.56m mt. All the bullish fundamental  factors mentioned continue to support ourOVERWEIGHT call on the plantation sector. We maintain our CY12 average CPO priceof RM3,200 per mt but may increase it further if soybean oil production continuesto deteriorate in South America.  We  have OUTPERFORM  calls  on SIME (TP: RM11.60) and IJM Plantation (TP: RM4.25) on valuation grounds.To leverage on  their  double digit  FFB  growth, we  also  have OUTPERFORM  calls  on Ta  Ann (RM7.75) and UnitedMalacca (TP: RM8.00). Meanwhile, we maintain MARKET PERFORM calls on KLK (TP:RM23.60), IOI (TP: RM5.60) and GENP (TP: RM9.90).

Mar-12 stocks levelbelow expectation.  The  CPO inventory level of 1.96m mt was 2% lowerthan the consensus estimate of 2.00m mt. It is also 6% below our estimate of 2.08m mt. The key surprise was thebetter-than-expected exports growth of 11% MoM to 1.34m mt (5% above theconsensus and our expectation of 1.28m mt). As the exports growth of 11% MoMsurpassed the production increase of 2% MoM, the stocks-to-usage ratio declined to 11.3% in Mar-12 (from 13.5%in Feb-12). On the overall, the meaningful drop in the stocks level to below2.00 mt is positive for CPO prices.

Tree stress effecthas just started. CPO production slumped 14% YoY to 1.21m mt in Mar-12.  The decline  was  more severe  than  market expectations  of  a 7%  to  9% drop  and  our expectation of a 2% drop. As highlightedearlier  in our sector update report on27 Mar, we believe that the tree stress effect on oil palm trees has started.Hence, the CPO production upcycle, which has lasted for 12 months (from Mar-11to Feb-12) should have ended. In Apr-12, CPO production is likely to register aYoY production decline of about 4% to about 1.47m mt. However, our estimate mayappear too optimistic at the current juncture as the severity of tree stresseffect is still unclear. CPO prices are nonetheless likely to appreciatefurther as CPO production will be limited as tree stress effects usually lastfor 2 years.

Strong CPO exports inMar-12 likely to continue. Exports surged by 11% MoM or 132k mt in Mar-12to 1.34m mt. Among the key CPO consumers, the highest growth was seen in Pakistan(+125% MoM to 78k mt), Europe (+63% MoM to 174k mt) and India (+11% MoM to 120kmt). The strengthening CPO exports to Pakistan were probably caused by a normalisationprocess as the Feb-12 number was extremely low (due to transporters' strike in thecountry causing closure of the factories). The strong CPO export trend islikely to continue in  April,  judging from  the  cargo surveyor's  estimate  of an  8%  CPO export  growth  to 479k  mt in the first 10 days ofApril. The resilient CPO demand should support CPO prices in 2Q12.

USDA WASDE reportbullish for CPO prices.  In thelatest World Agriculture Supply and Demand Estimates report released on 10 Apr,USDA has reduced its 2011/12 season global soybean oil inventory by 0.17m mt or6.2% from its previous forecast to only 2.56m mt. As a result, the 2011/12season global soybean oil stock-to-usage ratio declined by 41pp to 6.08% fromlast month's estimate of 6.49%. Soybean oil production from South America has meanwhilebeen severely affected by bad weathers. Argentina soybean oil productionforecast has been reduced by 0.13m mt or 1.7% to 7.30m mt while Brazil soybeanoil production has been  cut  by 0.11m  mt  or 1.6%  to  6.81m mt.  CPO  prices will  benefit  from this  as  it is  usually used as a substitutefor soybean oil.  


Source: Kenanga

JF Apex rates IJM Plantation a 'buy'

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: JF APEX

Price Call: BUY

Target Price: 3.75

IJM Plantation Bhd's financial year 2014 (FY14) revenue is expected to increase by 16 per cent upon maturity of the 13,000 hectares of oil palm it planted in Indonesia during FY12 and FY11.

In a research note today, JF Apex Securities Bhd said IJM's revenue was expected to be further enhanced from FY16 onwards with the prime production period with fresh fruit bunches yield increase from the current 23.7 tonnes/ha to 25 tonnes.

JF Apex has around 45,000ha of planted area in Sabah and Indonesia and aimed to grow its planted landbank to 70,000ha in FY13.

It said IJM's efforts to increase the landbank would be focused in Indonesia where it currently has around 20,000ha.

"IJM aims to achieve 30,000-40,000ha in Indonesia by planting 5,000-8,000ha annually over the next two to three years," it said.

It said as at March 2011, IJM's oil palm tree age profile consisted of 64 per cent of matured trees and 36 per cent of immature trees.

"The large portion of immature trees is expected to sustain revenue growth," it said.

JF Apex has recommended a 'buy' call on IJM with the target price of RM3.75.

"We are bullish on the long-term prospect once the Indonesian estate starts to contibute," it said. -- Bernama

Result Note - IJM Plantations - 24 Feb 2012

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: JUPITER

Price Call: HOLD

Target Price: 3.80

IJM Plantations BHD

3Q FY12 Results
9MFY12 results above expectation IJMP's 9MFY12 results were above our expectations. 9-month PBT of RM200.8m accounted for about 92% of our full year target whilst revenue of RM355.7m accounted for about 78% of our full year estimate. For the 9-month period under review, revenue rose 12% while net profit was up by 24% to RM150.2m on better commodity prices and higher FFB production. The average CPO price was RM3,027/MTcompared to RM2,671/MT and the average PKO price increased from RM3,855/MT to RM4,134/MT. FFB production was 12% higher on a recovery from palm yield stress in the previous financial year. Indonesian estates had contributed about RM7.6m in revenue to its 9M results. FFB production of 16,367MT was only accounted for about 3% of its total FFB production. Its Indonesian operations are still under the planting development stage, hence, contribution is insignificant compared to Sabah operations. The group had previously expressed its intention to invest RM1b in its oil palm plantations in Indonesia during 2012-2014 period. To date, the group has planted over 13,600ha in Indonesia. The Indonesian operations will contribute meaningfully by 2014. 3QFY12 revenue of RM146.4m was 9% higher YoY but 19% lower QoQ. The lower QoQ revenue was due to lower sales volume for CPO and PKO as well as lower commodity prices. Nevertheless, operating margin of 48.9% was higher compared to 34.8% in 2Q.

Recommendation
We have tweaked our forecast on its better YTD results. Based on a forward PE of 14x, our derived fair value is RM3.80. HOLD

Source:Jupiter Securities Research 24 Feb 2012

HLIB Research 23 Feb 2012 (WCT; SP Setia; AirAsia; MISC; IJM; TSH; Lafarge; KLK; IJM Plant.; Economics; Traders Brief)

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: HLG

Price Call: SELL

Target Price: 2.80

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD

Research House: HLG

Price Call: SELL

Target Price: 21.03

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD

Research House: HLG

Price Call: HOLD

Target Price: 7.11

Stock Name: TSH
Company Name: TSH RESOURCES BHD

Research House: HLG

Price Call: HOLD

Target Price: 2.13

Stock Name: IJM
Company Name: IJM CORPORATION BHD

Research House: HLG

Price Call: HOLD

Target Price: 5.77

Stock Name: MISC
Company Name: MISC BHD

Research House: HLG

Price Call: HOLD

Target Price: 5.57

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: HLG

Price Call: BUY

Target Price: 4.50

Stock Name: SPSETIA
Company Name: SP SETIA BHD

Research House: HLG

Price Call: HOLD

Target Price: 3.95

Stock Name: WCT
Company Name: WCT BHD

Research House: HLG

Price Call: BUY

Target Price: 2.98

WCT (BUY)

Nursing back the order book

'' WCT has secured a RM331m contract from Riverson Corporation S/B for the construction of a mixed commercial development which is expected to be completed by Aug-14.

'' YTD, WCT has secured RM632m worth of projects and outstanding order book has been lifted to ~RM3.0bn, translating to ~1.9x FY10's construction revenue and ~1.4x order book-to-market cap ratio.

'' With 2 successive contract wins in a month, returning interest into the stock may act as an upside catalyst. We maintain our BUY call on WCT with at TP of RM2.98.

''

SP Setia (HOLD)

Revised Takeover Offer Document Released

'' SP Setia has officially released the revised joint-offer document, with a firm timeline for the acceptances, with March 14^th being the deadline.

'' Key salient points remain unchanged ' (1) Tan Sri Liew will still be given a free hand to govern SP Setia, (2) The company's listed status will be maintained, with a minimum 25% public spread, and (3) Tan Sri Liew still retains his 3-year Put Option on his 8% stake at RM3.95 per share.

'' Maintain HOLD and target price of RM3.95, which is the revised offer price.

''

AirAsia (BUY)

Spreading Wings in 2012

'''' Reported 4Q11 core net profit of RM279.7m, leading to FY11 core profit of RM725.2m, in line with our forecast of RM718.2m and consensus's RM744.7m.

'''' FY11's average ticket prices dropped 5.1% yoy on the back of strong competition from Firefly. We expect yield to improve in FY12, given Firefly has stopped operation since Nov 2011 while MAS is in the midst of cutting its capacity.

'''' Management indicated forward bookings remain strong for Malaysia and Indonesia units, while Thailand is catching up.

'''' Management is bullish with Japan and Philippines JV. Japan AirAsia is targeted to make profit within its 1st year operation, while Philippines AirAsia within 2nd year operation.

'''' Net gearing continued to improve to 1.4x in FY11 vs 1.7x in FY10.

'''' Hedged 27% of 1H12 fuel requirement at US$120/bbl (jet kerosene).

'''' Maintain BUY with unchanged Target Price of RM4.50.

''

MISC (HOLD)

Thirsty for Turnarounds

'''' Reported 3Q FY12/11 core earnings of RM14.7m, taking 9M FY12/11 core earning to RM272.5m, in line with HLIB's RM283.1m, but higher than consensus estimates of losses.

'''' Petroleum, Chemical and Liner divisions continued to report losses due to low volumes, low charter rates and high bunker costs. Bunker price had increased to US$750/mt level.

'''' Management continued to guide gloomy outlook for Petroleum and Chemical businesses. Moreover, there is likelihood of charter rate being push down further due to Iran's sanction.

'''' MISC will be exiting Liner segment by 1H12. MISC has specifically provided RM1.45bn (larger than previous guidance of RM1.2bn) for the potential losses of exiting Liner business.

'''' Upgrade to HOLD with unchanged Target Price of RM5.57, after its price had come down.

''

IJM Corp (HOLD)

Encouraging 3Q results

'''' IJM posted encouraging performance during 3Q as all division contributed positively. 9MFY12 core earnings (after adjusting for unrealised forex loss of RM34m) grew by 53% to RM359m (26.3 sen/share) from RM235m (17.5 sen/share) previously. Core earnings made up 75% of our estimates and 78% of streets' estimates.

'''' Despite the encouraging results, we maintain our HOLD call on IJM with a TP of RM5.77 (previously RM5.72) as fundamentals have already been fully reflected in its share price.

''

TSH Resources (Hold; TP: RM2.13)

Boosted by strong FFB growth

'''' FY11 net profit of RM120.5m (+41.7%) came in within expectations, accounting for 100.9% of our forecast and 97.5% of consensus estimates.''

'''' Maintain net profit forecasts and SOP-derived TP of RM2.13. However, we are downgrading our recommendation on TSH from BUY to HOLD as upside is now capped by the recent strong run-up in share price.''

''

Lafarge (M) Cement (Hold; TP: RM7.11)

Above expectations

'''' FY12 net profit of RM317.8m (+7.6%) came in above expectations, accounting for 115.2% of our forecast and 112.8% of consensus estimates.''

'''' Despite the better-than-expected set of results, we are keeping our 2012-13 net profit forecasts unchanged, as we believe our forecasts have adequately reflected the expected pick-up in cement consumption.''

'''' TP maintained at RM7.11 based on 16.5x 2012 EPS of 43.1 sen. Maintain Hold.

''

Kuala Lumpur Kepong (Sell; TP: RM21.03)

In line

'''' 3MFY09/11 core net profit of RM356.3m (yoy: -10.8%; qoq: +37%) came in within expectations, at 24.4-24.6% of our and consensus full-year forecasts.

'''' Maintain net profit forecasts and TP of RM20.13 (based on 15x CY2012 EPS).

''

IJM Plantations (Sell; TP: RM2.80)

Above expectations

'''' 9MFY03/12 net profit of RM150.2m (+31.6%) came in above expectations, at 80.7% of our full-year forecast and 84.6% of consensus full-year estimates.''

'''' FY03/12-13 net profit forecasts raised by 5.5% and 4.6% to RM196.5m and RM190.0m respectively, largely to reflect: (1) Higher FFB yield assumption for IJMP's Malaysian oil palm estates; and (2) Slightly lower production cost assumptions.''

'''' TP raised by 4.9% to RM2.80 based on 13x CY 2012 FD EPS of 21.5 sen. However, we are downgrading our recommendation on the stock from Hold to Sell as valuation has run ahead of fundamentals.''

''

January Inflation Report

'''' Inflation eased further to 2.7% yoy in Jan 2012 (Dec: +3.0% yoy), in line with the consensus estimate.

'''' Price increase of the transport category moderated further to 1.6% yoy (Dec: +1.9% yoy) from a high of 6.0% yoy in May 2011 due to the lapse of fuel price hike effected a year ago. Food & beverages segment recorded slower price increase (+4.8% yoy) while price growth of housing & utilities sector inched up to 1.8% yoy.

'''' The pick-up of CPI MoM growth (+0.3%; Dec: +0.1%) may be driven by one-off festivity (Chinese New Year). However, it does suggest that underlying inflation remained apparent which will still be a concern for BNM.

'''' We maintain our inflation forecast for 2012 at 2.7%, factoring in Pemandu's future subsidy removal in Jul & Dec 2012 respectively).

'''' The civil servant salary revision, Budget goodies for the lower-income group, implementation of minimum wage, and tight employment situation will cause inflation to remain sticky at an elevated level.

'''' While room for OPR cut is now available, we still expect BNM to hold the OPR steady at 3.00% until end-2012 on resilient growth outlook and sticky inflation.

''

KLCI: Market turns cautious''

'''' Overall, the rebound from 16 Feb's low of 1549 pts continues to be weak as broader market turns more cautious and trading volume shrank, suggesting that the rally is running out of steam. The KLCI is still below our envisaged resistance channels of 1570-1580 pts. Supports fall on 14-d SMA (1554), 1550 and mid Bollinger band (1543).

Crude oil: Still upside bias

'''' High crude oil prices are likely to be sustainable in the short term amid escalating tensions between Iran and Western nations coupled with liquidity injection since Dec 11 which spurred big infusion of speculative capital into riskier assets. Iran said earlier this week that it stopped selling crude to France and Britain in a move designed to pre-empt European sanctions. The European Union on 23 Jan agreed to ban crude imports from Iran starting 1 July to pressure the country over its nuclear program.

'''' Looking at the chart, if prices can maintain above the long term downtrend line since all time high in June 2008 (US$145/barrel), it may continue to climb towards US$115/barrel after a brief sideways profit taking consolidation. Further resistance is US125/barrel (23.6% FR). Immediate supports are US$94-100.

IJM - 3Q earnings better than expected

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: HWANGDBS

Price Call: HOLD

Target Price: 3.15

IJM Plantations; Hold; RM3.40
Price Target: RM3.15 (Prev: RM3.10); IJMP MK

3QFY12 earnings above expectations. Raised FY12 earnings by 7% due to lower upkeep activities and
higher inventory for palm products. Maintain Hold with revised RM3.15 TP.

Source: HwangDBS Research 23 Feb 2012

IJMPLNT - Demanding valuation

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: HWANGDBS

Price Call: HOLD

Target Price: 3.10

IJM Plantations; Hold; RM3.33
Price Target: RM3.10; IJMP MK

3QFY12 earnings to be supported by strong CPO prices. FY12F-14F earnings raised by 2-18% on CPO price and FX rate revisions. Lacking near-term catalyst. Hold rating maintained; TP revised to RM3.10 on lower ERP assumption

Source: HwangDBS Research 14 Feb 2012

HLIB Research 8 December 2011 (IJMP; GenM; MAS; Traders Brief) Part 2

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: HLG

Price Call: HOLD

Target Price: 2.67

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD

Research House: HLG

Price Call: HOLD

Target Price: 4.07

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD

Research House: HLG

Price Call: SELL

Target Price: 1.19

IJM Plantations (Hold; TP: RM2.67)

A pure upstream player

'''' IJMP currently has a total landbank of 78,116ha and a total planted landbank of 38,805ha with an average age of 9.4 years as at 31 Mar 2011.

'''' The bases of our investment case for TSH include:

1.'''' Being one of the pure upstream oil palm plantation players in Malaysia, IJMP stands to be one of the major beneficiaries from higher palm oil prices;

2.'''' Strong balance sheet, with net cash and net cash per share of RM117.3m and 14.6 sen respectively;

3.'''' IJMP's oil palm estates in Indonesia will start contributing significantly from FY03/14 onwards; and

4.'''' Our positive longer-term outlook on the sector.

'''' We are projecting a net profit of RM186.3m, RM173.3m, and RM178.8m in FY03/12, FY03/13, and FY03/14 respectively.

'''' We are initiating coverage on IJMP with a HOLD recommendation and a TP of RM2.67/share based on 13x CY 2012 FD EPS of 20.6 sen.''

''

Genting Malaysia (HOLD)

RWNY To Fully Operate By 16 Dec

'''' According to NY Daily News, Resorts World New York (RWNY) has announced that the Phase 2 will open on 16 Dec (next Friday), two weeks ahead from our assumption. Phase 2 will include the remaining 2,514 VLTs and ETGs, two 250-seat restaurants and a large event space.

'''' RWNY's net win declined marginally to an average of US$562 vs. US$618 during the opening week. However, its net win is still strong against Empire City Casino's (ECC) average net win of US$268. We opined that this is normal in view of novelty effect.

'''' NY Lottery said that most of the cash came from out of state, which underpins our view that RWNY has enlarged the overall market size instead of cannibalizing ECC's performance.

'''' Assuming RWNY were to experience the same historical net win trend as ECC, RWNY could possibly record an average net win of US$531 for 2011 and US$408 for 2012. RWNY may hit its bottom at US$321 when its novelty effect wears off.

'''' By factoring in such net win to RWNY vs. our assumption of US$300, our FY11-13 forecasts and target price would be raised by 1.2-4.9% and 3.2% respectively.

'''' EPS for FY11 increased 2% to account for earlier opening of Phase 2 but FY12-13 remained unchanged as we kept out conservative net win assumption of US$300.

'''' Target price remain unchanged at RM4.07. Maintain HOLD.

''

MAS (SELL)

Remain Skeptical on Outlook

'''' MAS unveiled its Business Recovery Plan to position MAS as the Preferred Premium Carrier, by focusing on 5 steps:

1.'' Cut network capacities and focus on profitable routes;

2.'' Improve customer experience to win back market share;

3.'' Manage unit costs down to improve margin;

4.'' Focus on core airline business, while ancillary activities likely to be "spin off"; and

5.'' Ensure the delivery of new aircrafts (23 units in 2012).

'''' MAS targets to improve profits by RM1.2-1.5bn at airline level and RM1.1-1.5bn at group level. Eventually MAS's 2012 group profit is expected to range between 'RM165m to +RM238m.

'''' The funding of RM6bn new aircraft deliveries had almost been fully secured. MAS will be using combinations of new debts and leasing arrangements.

'''' We remain skeptical on MAS overall turnaround plan, which aimed to achieve breakevens in 2012 for:

1.'' Sketchy guidelines and timelines provided on the turnaround plan;

2.'' Ability of MAS to increase ticket prices without sacrificing passenger demand.

3.'' Relatively long timeline needed to change passenger perception and preference;

4.'' The readiness of staffs to accept the new structures.

5.'' Economy slow down, affecting premium travel demand.

'''' Target price remain unchanged at RM1.19.

''

KLCI: Cautious as the EU summit begins today''

'''' Technically, the KLCI is consolidating well above the crucial supports of mid Bollinger band (1465) and 100-day SMA (1470) levels.'' A breakdown below 1465 support will accelerate more selling pressures towards 50-d SMA (1442) with the current rebound from Nov 23's low of 1423 facing exhaustion. Immediate resistance remains at 200-d SMA (1503).

''

DIGISTAR: Poised for a triangle breakout

'''' Listed in 2003, Digistar is poised to breakout from its huge triangle pattern and is ripe for a stronger rebound. As technical indicators are on the mend, prices should take out the RM0.50 psychological level soon. Once this level is taken out, the next resistance targets are RM0.535 (52-wk high), RM0.57 (123.6% FR) and RM0.60 (138.2% FR). Cut loss below RM0.40 (200-d SMA).

'''' For cheaper exposure, investors can consider Digistar-WA.

Within expectations

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: ECMLIBRA

Price Call: HOLD

Target Price: 2.74

Underweight on plantations

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: UOB

Price Call: SELL

Target Price: 2.30

Stock Name: SIME
Company Name: SIME DARBY BHD

Research House: UOB

Price Call: BUY

Target Price: 10.40

KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining is Underweight stance on the PLANTATION [] sector and keeping its net profit forecasts and 2011-2012 crude palm oil (CPO) average selling price (ASP) assumptions of RM2,900 a tonne (US$980) and RM2,700 (US$900) respectively.

It said on Friday, Sept 2 that the sector catalyst would be an ufavourable weather which would impact the production of oil crops and palm oil.

However, the risks included a potential new plantation export tax structure in Indonesia that would negatively affect the margin for Malaysia-based refineries while a slowdown in global economy might affect demand for CPO products. Another factor would the weather's impact on global oilseed production.

In its comments on the plantations sector, it said the April to June 2011 quarterly results were mostly in line with expectations, with the exception of Sime Darby.

UOB Kay Hian Research said Sime Darby posted stronger-than-expected results on the back of strong performance from its motor and industrial divisions, and this was coupled with improved margins from its plantation division on better cost control.

'Overall, 2Q11 results posted strong year-on-year growth due to strong fresh fruit bunches (FFB) production and high CPO selling price, with the exception of IOI Corporation which posted lower earnings year-on-year on the back of weaker contribution from its resource-based manufacturing segment (-54.1% on-quarter, -37.6% on-year) that was suffering from lower sales and lower margins.

However, the downstream business posted negative on-quarter growth for all companies

The research house, in maintaining its Underweight recommendation on the sector, said it was'' less bearish on CPO price but the decreasing CPO price trend might stretch into 1Q12 on the back of high inventory level as demand is unable to catch up with the strong supply.

UOB Kay Hian Research said its top sell was IJM Plantations (Target: RM2.30) given its high valuation. Its only Buy for this sector in Malaysia was Sime Darby (Target: RM10.40) for its turnaround in operations leading to stable earnings growth. A potential catalyst could come from potential enhancement M&A domestically and globally.

To recap, it said all plantation companies recorded stronger fresh fruit bunches (FFB) production in 2Q11 due to strong yield recovery in Malaysia and high ASP. Strong yield recovery in Malaysia especially in Sabah and Sarawak has enhanced production in Sabah estates.

However, it raised concerns about the lower margin and lower sales for the downstream segments.

Companies such as IOI Crop, Kuala Lumpur Kepong and Sime Darby recorded weaker on-quarter profit for their downstream business.

This might due to: a) limited ability to pass down earlier high raw material costs that resulted from the sharp correction in CPO price in the last two weeks of June 2011, and b) thin or negative refining margins due to the sharp fall in RBD palm stearin price.

In its assessments of Sime Darby and IJM Plantations were the top performers in 2Q11. IJM Plantation benefitted from the strong yield recovery in Sabah and its active forward selling policy which enabled it to lock in higher prices.

Sime Darby's performance was boosted by the better-than-expected growth in its plantation (+88.4% on-quarter , +221.8% on-year), industrial (+52.4% on-quarter, +69.9% on-year) and motor (+16.9% on-quarter +31.4% on-year) divisions.

UOB Kay Hian Research said IOI Corporation was the weakest performer. It recorded a negative on-quarter growth of 16.6% and flat on-year net profit growth in 2Q11. This was mainly due to the lower contribution from its downstream business which were affected by the lower sales and margins across all segments.

Meanwhile, it upgraded Sime Darby from a Hold to Buy with a higher target price of RM10.40 from RM9.75 based on sum-of-the-parts (SOTP).

'We have raised our earnings forecasts for FY12 and FY13 by 6.5% and 9.3% respectively to factor in the stronger-than-expected performance for its industrial and motor divisions,' it said.

As for IJM Plantations, it cut the target price to RM2.30 to factor in the higher interest expense. This is caused by its debt funding for the new planting investment of RM600 million in Indonesia over the next four years, which offsets its upward revision of FFB production growth to 6%-7% on-year from 5%.

On the outlook for CPO, it said the CPO prices were expected to be stable in 3Q11 due to the slowdown in production as a result of less harvesting days during the Hari Raya festive holidays and biological effect after the strong production in 2Q11. Also, demand for palm oil products from China and energy producers in Europe would remain strong in 3Q11 before entering the cooler weather season in 4Q11.

However, it said a delay in the next peak production season to 4Q11 which also coincides with the low demand season could result in a further decline in CPO prices as they react negatively to rising inventory level.

On the weather, it raised concerns that excessive rainfall in 1H11 might affect the pollination in 2H11. For instance, Sabah received higher-than-average rainfall from January to April.

While sufficient rainfall was important for palm oil productivity, excessive rainfall could also affect the pollination and fruits, and hence affect the FFB production in Sabah estates, it said.

1QFY12: Strong recovery in production

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD

Research House: ECMLIBRA

Price Call: TRADING BUY

Target Price: 3.61

IJMPLNT - IJM Plantations cut to 'hold' at ECM

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: ECMLIBRA

IJM Plantations Bhd., a Malaysian palm oil producer, was downgraded to “hold” from “trading buy” at ECM Libra Capital Sdn. on expectations that prices for the edible oil will fall.

Its share estimate was cut to 2.80 ringgit from 3.99 ringgit, analyst Bernard Ching said in a report today. - Bloomberg

IJMPLNT - IJM Plant downgraded to 'hold'

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: HWANGDBS

IJM Plantations Bhd, a Malaysian plantations company, had its stock rating downgraded to “hold” from “buy” at HwangDBS Vickers Research Sdn Bhd on an expected low dividend yield and forecast negative earnings growth over the next two years.

The share price estimate was cut to RM3.30 from RM3.80 on higher capital expenditure requirements and lower growth, HwangDBS said in a report today. -- Bloomberg

IJMPLNT - Opportunity to accumulate IJM Plantations stocks

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: MIDF

IJM Plantations Bhd
(Jan 25, RM2.95)
Upgrade to buy at RM3 with target price RM3.52: IJM Plantations' (IJMP) share price has retraced by 2.6% year-to-date. We believe that this presents a good buying opportunity as we expect the CPO price to remain on the uptrend given the strong demand and supply fundamentals. We are also sanguine on the future performance of IJMP as 60% of the planted areas are prime mature trees. Based on our target price of RM3.52 and the expected dividend yield of 3.05%, we are expecting a total potential upside of 20.35%.

Given the better prospects for the CPO price moving forward, the return on equity for IJMP is expected to improve to 9.2% and 9.5% in FY11 and FY12 respectively, from a low of 6.6% in FY10.

We are expecting 308ha of Indonesian estates to start producing in FY12 and this would translate into 7.4% increase in fresh fruit bunch (FFB) production.

The FFB yield is estimated to increase by 3.1% year-on-year to 25 tonnes per hectare as the weather is expected to recover in 2HFY11.

We believe that the CPO price will continue its rising trend supported by the strong fundamental of stable demand coupled with the shortfall in supply. We maintain our target industry mean price at RM3,400 per tonne and realised CPO selling price for IJMP of RM3,247 per tonne and RM3,510 per tonne in FY11 and FY12 respectively.

IJMP's price retracement is due to profit-taking and not caused by an adverse shift in the company's fundamentals. This provides a buying opportunity to accumulate IJMP stock. We are upgrading IJMP to a 'buy' from 'neutral' with unchanged target price of RM3.52. The target price is pegged at 17.5 times EPS 12, based on its five-year historical PER. 'MIDF Research, Jan 25


This article appeared in The Edge Financial Daily, January 26, 2011.