IJM Plantations Bhd’s earnings will be driven by a higher production of palm oil following improved tree age profile coupled with the favourable crude palm oil (CPO) price, said Inter-Pacific Research.

The research house, in reiterating its outperform recommendation at RM3.64, said it expected IJM Plantations’ earnings to remain healthy with further upside to CPO prices due to tight supply of edible oils.

“Based on our CPO price of RM3,200 per tonne for CY2008, we project their earnings per share (EPS) for FY3/2009 to be at 35.7 sen.”

“Our fair value for IJM Plantations is pegged at RM4.30 based on price earnings ratio (PER) of 12 times,” it said.

IJM Plantations acquired three plantations in East Kalimantan namely PT Sinergi Agro Industri, PT Zarhasih Kaltim Perkasa and PT Primabahagia Permai, comprising a total landbank of 32,634ha, raising its total plantation area to 62,441ha.

Inter-Pacific Research said field planting in Kalimantan was expected to start early 2009, with 100,000 seeds sourced from New Britain Palm Oil in Papua New Guinea (PNG) and 50,000 from their production facilities in Sandakan currently being nurtured in the nursery.

It said that New Britain Palm Oil had pointed out that it could have one of the highest yielding seeds in the world, with the potential to produce palm trees with fresh fruit bunch (FFB) yield of 26 tonnes to 30 tonnes per hectare annually
“Palm trees from these seeds are expected to yield fruits within two years, which is 12 months ahead of normal palm trees. Adding on, these palm trees will reach their prime mature stage after six years compared to industry’s average of eight years.

IJM Plantations’ FFB production has been increasing consistently over the past few years with the average compounded annual growth rate (CAGR) of 8.9% from FY3/2005 to FY3/2008, as a result of improved tree age profile of their palm trees.

“We expect output to grow at a sustainable pace, as more palm trees will mature over the next two to three years before the FFB production peaks,” it said.

On IJM Plantations’ Indian venture via a joint venture (JV) with Godrej Agro Ltd (GAL) and Godrej Gokama Oil Palm Ltd (GGOPL) to develop CPO mills and palm estates, the research house said the alliance would open vast opportunities for the company to tap into the lucrative palm oil business in the highly populated region.

The JV would also enable IJM Plantations to move on upstream activities that involved procurement of planting materials, promoting nurseries, supply of high quality seeds and agronomics assistances to planters.

“The ‘buyback’ strategy of FFB from planters will enable them to move downstream, allowing them to establish crude palm oil mills,” it said.

The joint venture with GAL and GGOPL was to develop CPO mills and palm estates in the regions of Karnataka and Goa. IJM Plantations has a 51% stake in GGOPL from GAL via its subsidiary IJMP (Mauritius) Ltd.

Meanwhile, Inter-Pacific Research said that at current CPO prices, biodiesel production was not economically viable as the CPO was trading circa RM3,800 per tonne which was already higher than crude oil price at RM2,330 per tonne.

“Based on our computation, it will be economical to produce biodiesel if the CPO price is below RM2,400 per tonne and crude oil hovering at current price. Also, the US subsidy of US$300 (RM960) per tonne for US biodiesel exporters worsens the competitiveness of biodiesel production in Malaysia.

“Thus, the delay by IJM Plantations over the production of biodiesel until CPO price becomes relatively competitive compared to crude oil price will be a positive move in our opinion,” it said.