IJM Plantations Bhd (IJMP) is fast becoming one
of the favourites in the plantation sector, given its strong earnings
prospect resulting from the bullish crude palm oil (CPO) prices.
Citi Investment Research in its latest note said there was an upside for
plantation companies, given the underlying positive fundamentals in the
sector.
It has a 12-month target price on IJMP at RM5.63. However, several major
risks can prevent the shares from reaching the target price, including
poorer-than-expected CPO prices.
“Every 1% variance in CPO price will change our net profit forecast on the
group by 2%,” it added.
On biodiesel, the brokerage said: “This is a new business and any potential
delays can adversely affect IJMP's financial resources and earnings.”
It expects the long-term growth for IJMP to be driven by land acquisitions.
However, firmer CPO prices may result in higher asking prices for plantation
land.
HwangDBS Vickers Research, meanwhile, is initiating a “buy” call on IJMP
with a 12-month target price at RM4.50.
It said: “Continued high CPO prices as well as improvement in fresh fruit
bunches yield are expected to fuel the group's growth”.
The brokerage also viewed IJMP's aggressive new planting strategy in
Indonesia as positive, given the small land bank reserves in Malaysia.
“We expect IJMP to develop its Indonesian land bank within six years,
assuming 2,000ha to 5,000ha of new planting per annum from FY09,” it said.
The brokerage said the Indonesian land injection also brought new growth
prospects.
OSK Research is also maintaining a buy on IJMP with target price at
RM4.60 based on CPO price assumption at RM2,750 this year.
While biodiesel demand could have aggravated the world supply demand
imbalance resulting in steep rise in CPO prices since 2005, the research
unit continue to believe that the main price driver is rising demand from
emerging economies like China and India.
On the supply side, decreasing soybean production due to switching to other
crops like corn for ethanol production has helped keep vegetable oils at
high prices.
