Investment Highlights

• We are upgrading IJM Plantations to HOLD from SELL with a higher fair value of RM1.70/share vs. RM1.13/share previously. Our new fair value for IJMP is based on an FY21F PE of 27x vs. 18x originally. We have raised our PE assumption for IJMP as prospects for the palm oil sector are not as bleak as before. Although palm stockpiles may remain high in 2H2020, palm demand is recovering.

• IJMP has declared a gross DPS of 2 sen for FY20 (FY19: 2 sen), which implies a yield of 1.2%.

• IJMP’s FY20 net profit was within our forecast but 34.7% below consensus estimates. The group swung into a core net profit of RM24.3mil (ex-forex loss of RM87.1mil) in FY20 from a core net loss of RM10.6mil (ex-forex loss of RM25.8mil) in FY19.

• The improvement in IJMP’s FY20 core net profit was underpinned by higher CPO prices in 4QFY20. Recall that CPO prices started recovering at the end of 2019 before tumbling in February 2020.

• We believe that IJMP’s core net profit would have been higher in FY20 if the group had not incurred a net fair value loss of RM7.9mil on CPO price swaps, fair value loss of RM3.3mil on interest rate swaps, impairment of RM4.0mil on receivables and RM5.4mil adjustment on inventories. IJMP recorded a fair value loss on CPO price swaps of RM24.4mil in 3QFY20, which swung into a gain of RM14.2mil in 4QFY20.

• IJMP recorded an average CPO price of RM2,269/tonne in Malaysia in FY20 vs. RM2,125/tonne in FY19. Average palm kernel oil price was RM2,668/tonne in Malaysia in FY20 against RM3,168/tonne in FY19.

• Internal FFB production growth was 8.7% in FY20. Indonesia division registered a FFB output growth of 11.7% in FY20 while in Malaysia, FFB production improved by 5.2%. Indonesia accounted for 56.2% of IJMP’s FFB production in FY20 (FY19: 54.7%).

• IJMP’s Indonesia division achieved a smaller pre-tax loss of RM3.5mil (ex-forex changes) in FY20 vs. RM34.3mil in FY19. In Malaysia, EBITDA was RM82.0mil in FY20 against RM60mil in FY19.

• Comparing 4QFY20 against 3QFY20, IJMP’s core net profit surged to RM24.3mil (ex-forex loss of RM100.7mil) from RM6.7mil (ex-forex gain of RM13.4mil).

• IJMP enjoyed higher CPO prices in 4QFY20, which compensated for weaker FFB production. Average CPO price realised in Malaysia climbed to RM2,767/tonne in 4QFY20 from RM2,437/tonne in 3QFY20. Group FFB production dived by 17.8% QoQ in 4QFY20.

Source: AmInvest Research - 29 Jun 2020