KUALA LUMPUR: IJM Plantations Bhd could face major crop losses if the logistics issue continues to delay its harvesting process at its East Kalimantan estate, Affin Hwang Capital Research said.
The firm said that the plantation company was also exposed to lower fresh fruit bunch (FFB), crude palm oil (CPO) and higher production cost.
Therefore, Affin Hwang has reduced its earnings forecast on IJM Plantation.
“We are cutting our financial year ending March 31, 2019 and 2021 (FY19) and (FY21) core earnings per share between 11 per cent and 41 per cent. Hence, we re-affirm a ‘sell’ call with a lower target price of RM1.51 from RM1.88 previously,” Affin Hwang plantation analyst Nadia Aquidah wrote in a report today.
She added that the delay in harvesting at IJMP’s oil-palm plantation estate in East Kalimantan, Indonesia, was due to insufficient barges to carry the CPO to the refineries.
“Hence, there were days that IJMP had to stop harvesting as they were unable to process the FFB. We are lowering our FY19 FFB production assumption for Malaysia to 470,000 tonnes from previous forecast 500,000 tonnes, while FFB production for Indonesia now falls to 500,000 tonnes from 520,000 tonnes previously.”
Nadia said IJM Plantation’s production costs were likely to be higher in FY19 dragged by the Malaysian operations as labour costs increased and production was tracking lower than expected.
“The minimum wage in Malaysia is set to rise to RM1,050 starting January 1, 2019 from RM1,000 in Peninsular Malaysia and RM920 in East Malaysia.
“The CPO cost of production for Malaysia in FY19 could potentially climb to RM1,800-1,900 per tonne from RM1,650 per tonne in FY18, while Indonesian costs of production are likely to stay between RM2,100 and 2,200 per tonne.”
Nadia expects CPO prices to improve in coming months as prices of most vegetable oils have been under pressure with the improvement in global production, including palm oil, as well as trade tensions between the US and China.
“Our CPO average selling price forecast for IJM Plantation is at RM2,250 to 2,450 per tonne for FY19-21, from RM2,532 per tonne in FY18,” she said.