Investment Highlights

• We maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM1.90/share. Our fair value for IJMP is based on a FY22F PE of 18x (vs. 25x previously).

• We have raised IJM’s FY22F net profit by 37.0% to account for higher gross profit margin and an average CPO price assumption of RM2,700/tonne vs. RM2,500/tonne originally. On the flip side, we have reduced the PE assumption used to derive IJMP’s fair value to 18x from 25x. We believe that ESG concerns would drag on the valuations of palm oil companies in Malaysia.

• For FY21F, we have raised IJMP’s net profit by 49.7% to account for a higher gross profit margin of 35% vs. 30% originally and new CPO price assumption of RM2,800/tonne vs. RM2,500/tonne previously. IJMP’s 9MFY21 results were 40% above our original forecast but within consensus estimates.

• IJMP recorded a core net profit (ex-forex gains of RM86.3mil) of RM61.4mil in 9MFY21 vs. a core net loss of RM0.6mil in 9MFY20. Included in IJMP’s 9MFY21 core net profit were fair value losses on CPO price swaps of RM11.3mil. The fair value loss on CPO price swap was RM8.2mil in 3QFY21.

• IJMP benefited from the rise in palm product prices in 9MFY21. The group’s EBIT margin surged to 20.3% in 9MFY21 from 5.2% in 9MFY20. IJMP realised an average CPO price of RM2,747/tonne in Malaysia in 9MFY21 compared with RM2,146/tonne in 9MFY20. Average palm kernel oil price realised in Malaysia was RM3,404/tonne in 9MFY21 vs. RM2,465/tonne in 9MFY20.

• The price difference between IJMP’s CPO in Malaysia and Indonesia widened to RM423/tonne in 9MFY21 from RM195/tonne in 9MFY20. We attribute the increase in the price disparity to the hike in Indonesia’s CPO export levy and export tax in December 2020.

• IJMP recorded an FFB production growth of 1.8% YoY in 9MFY21. The group’s FFB output in Indonesia slid by 3.4% YoY in 9MFY21 while in Malaysia, FFB production rose by 8.3%. Indonesia accounted for 53.0% of IJMP’s FFB production in 9MFY21.

• IJMP’s Indonesia division recorded a pre-tax profit of RM36.5mil in 9MFY21 vs. a pre-tax loss of RM7.3mil (exforex changes) in 9MFY20. The Malaysia unit’s pre-tax profit expanded to RM88.9mil in 9MFY21 from RM16.7mil in 9MFY20 on robust palm product prices.

Source: AmInvest Research - 26 Feb 2021