Investment Highlights

• We maintain our SELL recommendation on IJM Plantations (IJMP) with a lower fair value of RM1.30/share (vs. RM1.52/share previously). Our fair value of RM1.30/share for IJMP is based on an FY20F PE of 25x.

• We have reduced IJMP’s FY20F net profit by 25.5% to account for a lower CPO price assumption of RM2,100/tonne compared RM2,300/tonne originally.

• IJMP’s FY19 core net loss of RM10.6mil (ex-forex loss of RM25.8mil) was below our earnings forecast but above consensus. Consensus had forecast a net loss of RM19.7mil for IJMP in FY19. We had forecast a net profit of RM4.0mil for the group. Included in IJMP’s FY19 net profit was an RM7.5mil gain on CPO price swaps.

• IJMP swung to a core net profit of RM3.8mil in 4QFY19 from a core net loss of RM20mil in 3QFY19. The QoQ improvement in profitability in 4QFY19 was underpinned by a turnaround in the Indonesia division.

• Pre-tax profit of the Indonesia division (ex-forex) returned to a positive RM3.0mil in 4QFY19 from a loss of RM28.7mil in 3QFY19. We believe that the unit no longer faced difficulties in transporting its CPO to the refineries. Sales of IJMP’s CPO products in Indonesia rose by 9.3% QoQ to 31,343 tonnes in 4QFY19 in spite of a 6.9% fall in FFB production.

• Recall that there was a shortage of barges or vessels in Kalimantan in 2H2018 due to a surge in FFB production and the implementation of the B20 biodiesel policy.

• Comparing FY19 against FY18, IJMP was hit by falls in CPO production and price. IJMP’s group CPO production shrank by 2.4% in FY19 in spite of a 4.7% rise in FFB production. The decline in CPO output was due to a 23.6% fall in FFB purchases in Malaysia. CPO production in Malaysia dived by 12.5% to 122,973 tonnes in FY19.

• Pre-tax profit of the Malaysia division dropped to RM16.8mil in FY19 from RM80.9mil in FY18. In Indonesia, core pre-tax loss (ex-forex) widened to RM34.3mil in FY19 from RM6.4mil in FY18.

• Average CPO prices realised were RM2,125/tonne in Malaysia and RM1,846/tonne in Indonesia in FY19. Price differential between CPO in Malaysia and Indonesia widened to RM279/tonne in FY19 from RM259/tonne in FY18.

Source: AmInvest Research - 30 May 2019