The rating reflects IJM Plantations Berhad’s (IJMP) business focus in palm oil plantation and milling and its strong plantation performance. The rating is, however, moderated by the Group’s vulnerability to cyclical developments in the palm oil industry.

IJMP’s palm oil cultivation is undertaken in the Sandakan and Labuk-Sugut districts of Sabah. Out of a total land bank of 29,560 hectares, 79% have been planted out, of which 68% bear matured palm oil and 32% immature palm oil plantings. An increased percentage of plantation areas came into production in 2003 and coupled with the significant improvement in average CPO price to RM1544 per metric tonne (MT) in the said year (2002: RM1363.50 per MT), helped the Group to register record revenue of RM202.02 million from RM96.83 million previously. Sales of crude palm oil are expected to continue driving the Group’s revenue and earnings; exposing its revenue base to cyclical movements in the palm oil price.

Reflective of the well laid infrastructure and effective management of its estates, IJMP recorded an average FFB yield of 20.8 MT per hectare (2002: 21.7 MT per hectare); higher than the industry average (19.0) but slightly lower than the Sabah state’s average (21.3). The slight decline in IJMP’s FFB yield (20.8 MT per hectare) as compared to the previous year was due to the dilution by the initial harvest of sizeable area of young plantings coming into maturity. On the contrary, the average yield per hectare in prime age plantings in the Sandakan region registered a
new record for the Group at 28.1 MT per hectare
vis-à-vis 26.4 MT per hectare in the previous year.

The Group’s average oil extraction rate of 21.4% is above both the industry average of 19.8% and Sabah’s average of 21.3%. Going forward, MARC expects IJMP’s palm oil plantations’ performance to improve further as the estates reach their prime maturity profile.

FFB outputs from the Group’s estates are supplied to its palm oil mills with a total processing capacity of 840,000 MT of FFB per year. During the year the Group’s mills managed to process 619,391 tonnes of FFB as compared to 471,435 tonnes in 2002.

Besides the maintenance of a six-month liquidity buffer to meet secondary note payments under the ABBA bonds, a sweep mechanism has also been incorporated in the issue structure, whereby 50% of any surplus net operational cash flow in a year (as compared to original projected figures) will be transferred to a Commodity Reserve Account to serve as additional liquidity buffer.

The Group’s financial profile continued to strengthen in 2003, underpinned by improving profitability measures. Going forward, the group’s debt servicing capacity is expected to be at comfortable levels throughout the tenure of the facility. Debt leverage has historically been low, ranging between 0.03x to 0.47x over the past four years. The Group’s debt level should progressively reduce beginning year 2005 upon the first principal repayment of the bond facility.