Investment Highlights

• We maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM1.70/share. Our fair value for IJMP is based on an FY21F PE of 27x.

• Although IJMP’s 1QFY21 core performance was dismal, we are not revising our forecast for now. We expect IJMP’s core net profit to improve in the coming quarters on the back of higher CPO production.

• Excluding net forex gains of RM91.7mil, IJMP reported a core net loss of RM9.6mil in 1QFY21. Included in IJMP’s core net profit was a fair value gain of RM2.7mil on CPO price swaps.

• On a positive note, there were fewer non-cash flow items in IJMP’s 1QFY21 results compared with 4QFY20. Recall that in 4QFY20, IJMP recorded a fair value loss of RM3.3mil on interest rate swaps, impairment of RM4.0mil on receivables and RM5.4mil write-down on inventories.

• IJMP’s EBIT surged to RM28.6mil in 1QFY21 from RM1.0mil in 1QFY20, underpinned by enhancements in palm product prices and FFB production. However, core net loss (exunrealised forex changes) widened to RM9.6mil in 1QFY21 from RM4.9mil in 1QFY20 due to a higher effective tax rate.

• Average CPO price realised in Malaysia improved by 20.7% to RM2,318/tonne in 1QFY21 from RM1,921/tonne in 1QFY20. Average palm kernel oil price in Malaysia rose by 26.7% to RM2,812/tonne in 1QFY21 from RM2,220/tonne in 1QFY20.

• IJMP’s internal FFB production expanded by 18.8% YoY in 1QFY21. FFB output in Malaysia climbed by 23.3% YoY in 1QFY21 while in Indonesia, FFB production increased by 15.1%. Indonesia accounted for 53.4% of IJMP’s FFB production in 1QFY21 (1QFY20: 55.1%).

• Underpinned by higher CPO prices, IJMP’s Indonesia division achieved a smaller pre-tax loss of RM2.8mil (exforex changes) in 1QFY21 vs. RM7.8mil in 1QFY20. In Malaysia, pre-tax profit expanded to RM26.4mil in 1QFY21 from RM2.4mil in 1QFY20.

• Comparing 1QFY21 against 4QFY20, IJMP’s core net swung to a loss of RM9.6mil vs. a profit of RM24.3mil. The group was dragged by a high effective tax rate and increase in depreciation expense in Indonesia.

• Average CPO price in Malaysia dived to RM2,318/tonne in 1QFY21 from RM2,767/tonne in 4QFY20. Average palm kernel oil price in Malaysia contracted by 13.0% to RM2,812/tonne in 1QFY21 from RM3,233/tonne in 4QFY20. On a positive note, IJMP’s internal FFB production rose by 8.0% QoQ in 1QFY21.

Source: AmInvest Research - 27 Aug 2020