Investment Highlights

• We maintain HOLD on IJM Plantations (IJMP) with a higher fair value of RM1.90/share (vs. RM1.70/share previously). Our fair value for IJMP is based on an FY22F PE of 25x.
• IJMP’s 1HFY21 core net profit of RM24.3mil (ex-forex gains of RM56.8mil) is about 18% above our forecast but within consensus estimates. We have raised IJMP’s FY21F net profit by 13.7% to account for a higher average CPO price of RM2,500/tonne vs. RM2,300/tonne originally.
• After a dismal 1QFY21, IJMP recorded a core net profit of RM33.9mil (ex-forex losses of RM35.0mil) in 2QFY21 compared with a core net loss of RM9.6mil (ex-forex gains of RM91.7mil). Recall that IJMP was affected by an increase in depreciation expense in Indonesia and a high effective tax rate in 1QFY21.
• IJMP’s earnings turnaround in 2QFY21 was underpinned by a recovery in palm product prices. Average CPO price realised in Malaysia rose to RM2,713/tonne in 2QFY21 from RM2,318/tonne in 1QFY21. On a negative note, FFB output fell by 9.4% QoQ in 2QFY21.
• Interestingly, the price differential between IJMP’s CPO in Indonesia and Malaysia widened to RM397/tonne in 2QFY21 from RM252/tonne in 1QFY21. We believe that CPO pries in Indonesia have started to reflect the potential hike in CPO export levy although it has yet to take effect.
• Comparing 1HFY21 against 1HFY20, IJMP swung into a net profit of RM24.3mil from a core net loss of RM7.3mil. Average CPO price realised in Malaysia was RM2,516/tonne in 1HFY21 vs. RM1,953/tonne in 1HFY20.
• IJMP’s FFB production growth was 5.5% YoY in 1HFY21. FFB output in Malaysia expanded by 17.4% YoY in 1HFY21 while in Indonesia, FFB production slid by 4.1%. Indonesia accounted for 50.4% of IJMP’s group FFB output in 1HFY21.
• The Indonesia division recorded a larger EBITDA (ex-forex) of RM105.8mil in 1HFY21 compared with RM33.1mil in 1HFY20. In Malaysia, IJMP registered a higher EBITDA of RM76.8xmil in 1HFY21 against RM28.2mil in 1HFY20.
• In spite of the positive EBITDA, the Indonesia division recorded a pre-tax profit of zero in 1HFY21 (1HFY20: loss of RM19.1mil). We believe that the Indonesia division has not turned profitable at the pre-tax level yet due to high depreciation and interest expenses.

Source: AmInvest Research - 26 Nov 2020