31/05/2011 (Borneo Post) - IJM Plantations Bhd (IJM Plantations) is expected to register single-digit production growth this year and next year although the number will be marginal.

“Looking at the hectarage of trees aged 20 and above versus that aged 10 and below, IJM Plantations has 4,226 ha planted from 1987 to 1991. The number of hectares planted between 2002 and 2006 totalled about 7,700 hectares.

“This means the young trees’ improving yield will still be able to more than offset the declining yield from old trees,” said OSK Research Sdn Bhd (OSK Research) senior vice president, Alvin Tai in a research note yesterday.

According to Tai, the company was making steady progress with its new planting in Indonesia, having achieved 13,600 ha of new planting so far. Weather permitting, IJM Plantations planned to plant up another 10,000 ha in the current financial year.

“We mentioned in the commentary on last quarter’s results that IJM Plantations’ production will be hit by the 12-month effect of dry weather experienced in Sabah in 1QCY10 (first quarter of the calendar year 2010). The impact was made worse due to IJM Plantations’ high percentage of fully mature trees,” he said.

Tai noted that for the March quarter, production plunged by 26.6 per cent y-o-y (year-on-year), which was by far the worst for stocks under the research house’s coverage.

He further added that IJM Plantations’ April production had started to pick up as per seasonal trend but still lagged last year’s by 11.9 per cent.

Meanwhile, Tai stated that IJM Plantations’ financial year 2011 (FY11) core earnings of RM145.3 million were within the research house’s expectation of RM138.2 million as well as that of consensus.

He said that the company’s bottomline leapt 66.6 per cent on the back of a 22.9 per cent rise in average crude palm oil price to RM2,760 per tonne and a 66.7 per cent surge in realised palm kernel price price at RM4,259 per tonne.

He added that the effect of stronger prices was more than sufficient to offset the 4.9 per cent decline in fresh fruit bunch production.

“We are tweaking our FY12 earnings forecast slightly, raising it from RM172.4 million to RM175.4 million. For FY13, we expect earnings to weaken due to a lower average palm oil price,” Tai said.

OSK Research raised IJM Plantations’ fair value from RM3.07 per share to RM3.14 per share based on 15 times CY11 earnings.