Investment Highlights

• We maintain our SELL recommendation on IJM Plantations (IJMP) with an unchanged fair value of RM1.30/share. Our fair value of RM1.30/share for IJMP is based on an FY21F PE of 22x. Being a pure planter without downstream operations, IJMP is expected to be hit by weak CPO prices.

• We are keeping our earnings forecast for IJMP for now. We consider IJMP’s 1QFY20 net profit to be within our expectations and consensus estimates as the group’s FFB production is expected to improve from 2QFY20 onwards. CPO price has also risen above RM2,000/tonne in the past month.

• IJMP recorded a core net loss of RM4.9mil (ex-forex gainof RM0.168mil) in 1QFY20 compared with a core net profit of RM11.3mil in 1QFY19. Included in IJMP’s 1QFY20 net profit was a gain on CPO price swaps of RM3.8mil.

• EBITDA of the Malaysia division plunged by 24.7% to RM12.2mil in 1QFY20 from RM16.2mil in 1QFY19 while in Indonesia, EBITDA (ex-forex changes) dived 52.2% to RM16.7mil from RM35.0mil.

• Average CPO price realised by the Malaysia division slid by 19.8% to RM1,921/tonne in 1QFY20 from RM2,395/tonne in 1QFY19. In Indonesia, average CPO price realised was RM1,821/tonne in 1QFY20 compared with RM2,115/tonne in 1QFY19.

• Average price difference between IJMP’s CPO in Malaysia and Indonesia declined to RM100/tonne in 1QFY20 from RM280/tonne in 1QFY19.

• IJMP’s FFB production rose by 4.8% YoY in 1QFY20. FFB output in Malaysia improved by 20.2% YoY in 1QFY20 while in Indonesia, IJMP’s FFB production slid by 5.1%.

• Comparing 1QFY20 against 4QFY19, IJMP swung to a core net loss of RM4.9mil from a profit of RM3.8mil. We believe that the QoQ decline in net profit in 1QFY20 was due to a higher cost of production per tonne and lower CPO output.

• IJMP’s FFB production fell by 7.1% QoQ in 1QFY20. Average CPO price in Malaysia was relatively flat at RM1,921/tonne in 1QFY20 vs. RM1,927/tonne in 4QFY19.

• Net gearing stood at 51.6% as at end-June 2019 against 48.8% as at end-March. IJMP’s operating cash flows declined to RM1.4mil in 1QFY20 from RM48.7mil in 1QFY19 as the fall in palm product prices squeezed revenue.

Source: AmInvest Research - 29 Aug 2019