IJM Plantations Bhd - 2007

MARC has affirmed IJM Plantations Berhad’s (IJMP) RM150 Million Al-Bai Bithaman Ajil Islamic Debt Securities (ABBA) rating at A+ID with stable outlook underpinned by the company’s consistent operating performance and well managed plantations on the back of positive industry fundamentals and the company’s favourable capital structure. These strengths are moderated by IJMP’s exposure to the underlying cyclicality of palm oil prices.

IJMP is principally involved in the cultivation and management of palm oil estates.  Currently, IJMP’s landbank totalling 29,781 hectares (ha) is primarily concentrated in the Labuk-Sugut and Sandakan regions of Sabah, out of which 25,421 ha have been planted. Matured and immatured plantings occupy around 88.7% and 11.3% respectively based on the company’s present plantation profile. For the fiscal year ended 31 March 2007 (FY2007), IJMP recorded an average crop yield of 22.4 tonnes/ha (FY2006: 22.2 tonnes/ha), boosted by its Sandakan region estates average yield of 27.1 tonnes/ha, but moderated by its young plantings in the Sugut region estates which recorded an average yield of 19.4 tonnes/ha. IJMP’s average FFB yield performance was better than the industry’s average yield of 19.6 tonnes/ha but slightly below Sabah’s average of 23.1 tonnes/ha. Despite its strategically located palm oil mills and well managed estates, IJMP’s average oil extraction rate (OER) decreased slightly to 21.5% compared to 22.4% in the previous year, as a result of inclement weather during 4Q2006.

In FY2007, IJMP’s audited profit before tax increased by 8.3% to RM56.5 million (FY2006: RM52.1 million) on the back of higher revenue of RM271.6 million (FY2006: RM244.6 million). Sales of CPO accounted for 80% (i.e. RM217.3 million) of IJMP’s total revenue in FY2007, mainly attributable to higher average CPO prices of RM1,511/tonne compared to RM1,373/tonne in FY2006. IJMP’s financial performance is anticipated to strengthen in the medium term as a result of higher crop output while CPO prices are likely to remain high in the near term in light of the anticipated tightening of supply in global edible oils and increasing demand from the biofuel sector. Based on the 1Q2007 results, IJMP recorded revenue and profit before tax of RM92.4 million and RM17.2 million respectively (1Q2006: revenue: RM56.1 million, profit before tax: RM7.6 million). Historically, IJMP’s debt leverage ratios have been sound, and are currently well below the maximum covenanted level of 0.75 times (1Q2007: 0.21 times) imposed under the terms of the issuance. Liquidity position appears robust with cash and bank balances of RM76.7 million as at June 30, 2007. Financial flexibility is also deemed to be strong with unencumbered assets totalling RM732.1 million. IJM Corporation Berhad, its major shareholder currently has ratings of A+/MARC-1 from MARC on its notes issuance programme.

The stable outlook reflects MARC’s expectations that IJMP will continue to deliver strong operating performance, generating healthy cash flows, whilst maintaining a conservative balance sheet with low debt levels over the medium term.