IJMPLNT ... March 2009

10/March/09 closing price: RM2.05
HLE suggest with a BUY; PT RM 2.50

HLE initiate coverage on IJMP with a BUY and PT RM2.50 as we turn more positive on the plantation sector. IJMP is among the Malaysian companies that have embarked on expansion into Indonesia. With the recent acquisitions in Indonesia, IJMP’s landbank has doubled. Immediate growth will be driven by its maturing young tree profile of average 9 years. IJMP stands out with its high dividend payout ratio of circa 40%.

Indonesian estates to fuel LT growth
Indonesian plantation land doubling current landbank
Apart from IJMP’s current 30,000 hectares of mature plantation landbank in Sabah, IJMP had recently acquired another 32,000 hectares in East Kalimantan Indonesia, doubling current landbank. IJMP had budgeted RM600m to develop new oil palm estates in Indonesia over the next 5 years but we may see this being reduced due to lower CPO prices and lower cost of acquisition. We expect trees to bear fruit within the next 3-5 years with 2000 hectares of new planting annually. We believe the close proximity and fertile land on Borneo Island is positive to IJMP’s future growth

Current Sabah oil palm estates are efficiently run, with FFB yield and OER of 25.1mt/ha and 21.3% which compares favorably against Malaysian average of 20mt/ha and 20.2%.

Biodiesel JV been deferred
IJMP entered into a biodiesel JV with CTI Biofuels Malaysia in 2006 to set up a
90,000 mt biodiesel plant. However, due to the falling crude oil prices and high
CPO prices, the project has been further delayed as the current biodiesel
pricing is not viable for commercialization and we view this as positive.

Background:-
IJM Plantation began its venture into oil palm plantation back in 1985 and has since grown to its current size with oil palm estates in Sabah and Indonesia. IJMP gained its listing status on the Main Board of Bursa in July 2003 by taking over the listing status of Rahman Hydraulic Tin Bhd. IJMP is one of the 5 main divisions of the parent company IJM Group. The main business segments of IJMP are:

* Upstream plantation:
Malaysia-IJMP’s Malaysian operations are concentrated in Sandakan and Sugut region in Sabah. It currently owns 11 oil palm estate covering an area of 30,000 hectares, 4 palm oil mills capable of processing 1 million tonnes of FFB per year and 1 kernel crushing plant.
Indonesia- IJMP had acquired 32,634 ha of land in East Kalimantan in CY06-07 and is in the process of developing and planting oil palm.

* Downstream:
Biofuel-IJMP had ventured into the biofuel business to complement its upstream business with a 60:40 JV with a US company, CTI Biofuels Malaysia LLC. The plant is expected to have 90,000 tonnes capacity, with the first 30,000 tonnes coming on stream in end-08.

Going Forward:-
Investment into Indonesia
IJMP had recently acquired 32,634 ha of landbank in East Kalimantan for palm oil plantation development. Geographically the new landbank is close to their existing Sabah landbank and should yield some synergistic cost savings.

IJMP had targeted to plant on average 2,000 ha annually on the newly acquired Indonesian land. However due to poor weather conditions, we believe the new planting for FYMar09 maybe behind schedule. However, we think once the weather conditions improve, they will be able to resume planting. IJMP had budgeted RM600m for new plantation development over the next 5 years but may see it being lowered due to lower CPO prices and lower acquisition costs.

Young tree profile to mature over next 3-5 years
Average age profile of IJMP’s plants is still young with a third below prime mature age and maturing over the next 3-5 years. We expect the overall FFB yield to improve 28 mt/ha (similar to Malaysian industry leader IOI).

New planting on Indonesian landbanks will start to bear fruit within the next 3-5 years. Despite being fairly young trees, the new breed and fertile soil will have better FFB yields compared to Malaysia.

Higher payout ratio
Despite IJMP’s commitment to develop its newly acquired landbank in Indonesia, we believe IJMP is able to maintain its high dividend payout ratio.

Valuation
IJMP currently trades at 13x CY09PE, this is in-line with larger capitalized planters. However IJMP is a pure play and should not be compared to an integrated planter.