Investment Highlights

• We maintain SELL on IJM Plantations (IJMP) with an unchanged fair value of RM1.58/share. Our fair value is based on an FY21F PE of 25x.

• IJMP’s 9MFY20 net profit was within our forecast and consensus estimates. IJMP’s 9MFY20 results could have been better if the group did not incur a fair value loss on CPO price swap. Included in IJMP’s 9MFY20 net profit was a loss on CPO price swap of RM22.0mil. Fair value loss on CPO price swap was RM24.4mil in 3QFY20.

• Comparing 3QFY20 against 2QFY20, IJMP rebounded to a core net profit (ex-forex gain of RM13.4mil) of RM6.7mil from a net loss of RM2.3mil. The earnings turnaround in 3QFY20 was underpinned mainly by a higher CPO price and an increase in CPO production.

• IJMP’s average CPO price realised in Malaysia was RM2,437/tonne in 3QFY10 against RM1,983/tonne in 2QFY20. Average CPO price realised in Indonesia was RM2,160/tonne in 3QFY20 vs. RM1,740/tonne in 2QFY20.

• In contrast to the fall in FFB output recorded by most of the other planters, IJMP’s internal FFB production climbed by 16.8% QoQ in 3QFY20. Internal FFB production in Malaysia rose by 15.0% QoQ in 3QFY20 while in Indonesia, internal FFB output expanded by 18.2%.

• Indonesia accounted for 56.4% of IJMP’s internal FFB production in 3QFY20 and 55.8% in 9MFY20.

• IJMP reported a smaller core net loss (ex-forex changes) of RM0.6mil in 9MFY20 vs. RM14.3mil in 9MFY19. IJMP was still in the red in 9MFY20 as CPO prices were weak in 1HFY20. The recovery in CPO price only took place from 3QFY20 onwards.

• Average CPO price in Malaysia was RM2,146/tonne in 9MFY20 against RM2,204/tonne in 9MFY19. Average palm kernel oil price in Malaysia was RM2,465/tonne in 9MFY20 vs. RM3,240/tonne in 9MFY19.

• Internal FFB production growth was 11.0% YoY in 9MFY20. IJMP’s internal FFB output rose by 13.1% YoY in Malaysia and 9.4% YoY in Indonesia in 9MFY20.

• EBITDA of the Malaysian division improved by 0.9% YoY to RM46.5mil in 9MFY20 while the Indonesian unit registered a 2.2% YoY fall in EBITDA. The Indonesian division’s EBITDA (ex-forex) was RM67.3mil in 9MFY20 against RM68.8mil in 9MFY19.

Source: AmInvest Research - 26 Feb 2020