The rating of IJM Plantations Berhad’s (IJMP) RM150 Million Al-Bai Bithaman Ajil Islamic Debt Securities (ABBA Bonds) has been upgraded to A+ID reflecting its business focus in oil palm plantation and palm oil milling and its strong financial profile. This is, however, moderated by the Group’s vulnerability to cyclical developments in the palm oil industry.

IJMP’s oil palm cultivation is undertaken in the Sandakan and Labuk-Sugut districts of Sabah. Out of a total land bank of 29,647 ha, 82% have been planted out, of which 73.4% bear matured palm oil plantings. An increase in the matured areas in 2004 coupled with an improvement in average CPO price of RM1,610 per metric tonne (MT) contributed to the Group’s revenue of RM318.94 million for the 15 months ended 31 March 2005. Sales of crude palm oil are expected to continue driving the Group’s revenue and earnings; exposing its revenue base to factors such as cyclical movements in the palm oil price and seasonal factors affecting FFB production.

Reflective of the well laid infrastructure and effective management of its estates, IJMP recorded an average FFB yield of 21.1 MT per hectare for the year 2004, higher than the industry average of 18.6 MT per hectare but slightly lower than Sabah state’s average of 21.4 MT per hectare. This was mainly due to the dilution effect caused by a sizeable area of young plantings coming into maturity in the Sugut region. The Sugut region registered a new record yield for the Group at 15.8 MT per hectare vis-à-vis 11.0 MT per hectare in the previous year.

The Group’s average oil extraction rate of 22.02% for the year 2004 is above both the industry’s and Sabah’s average of 20.0% and 21.3% respectively. Going
forward, MARC expects IJMP’s plantations’ performance to improve further as the estates reach their prime maturity profile.

During the year 2004, the Group’s mills managed to process 618,528 tonnes of FFB as compared to the previous year’s 619,391 tonnes. Total processing capacity of IJMP’s three palm oil mills for the year 2004 increased 19% to 1,000,000 MT of FFB per year attributed to the capacity upgrade of the Sugut mill from 30 MT to 60 MT of CPO per hour.

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 (CRA) to serve as additional liquidity buffer. On the anniversary date from the initial drawdown, the balance in the CRA amounted to RM3.765 million.

With the softening of the commodity price since late 2004, the Group’s financial performance for the current financial year is expected to average down slightly as compared to FY2005 on an annualised basis. It will however, remain resilient, underpinned by improving crop production against increasing costs. 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 and below the covenanted level ranging between 0.03x to 0.47x over the past five years. The Group’s debt level should progressively reduce based upon the scheduled principal repayments of the bond facility beginning December 2005.