RESULTS

• IJM Plantations (IJMP) reported a 4QFY18 net profit of RM10.1m (-2.1% qoq, -54.3% yoy). Excluding forex losses and fair value gains on CPO pricing swaps, core net profit was RM20.7m in 4QFY18 (+91.8% qoq, +41.1% yoy) and RM69.4m for FY18 (-35.9% yoy). Results were within our expectations.

• Malaysia operations. The weaker qoq revenue in 4QFY18 was mainly due to weaker CPO sales volume and CPO prices. In line with the weaker qoq revenue, 4QFY18 PBT decreased qoq and yoy. For FY18, PBT fell 39% yoy to RM80m on weaker CPO prices, lower sales volume and higher replanting and wage costs.

• Indonesia operations. Revenue decreased qoq and yoy in 4QFY18. Pre-tax earnings recorded two consecutive quarters of losses as IJMP incurred the full fixed plantation maintenance and overhead costs on more young mature areas. For FY18, PBT reported a loss of RM2.5m due to higher operating costs.

• IJMP has declared a single-tier dividend of 5 sen/share (FY17: 7 sen), representing a net dividend yield of 2.2%.

IMPACT

• Expect FFB production to hit 1m tonnes in FY19. Management is expecting FFB yield to continue to improve in FY19. Malaysia operations are expected to contribute about half a million tonnes in FFB production in FY19, while Indonesia operations’ FFB production is expected to increase 50,000-70,000 tonnes (+11% yoy to +15% yoy) in FY19. All in all, we are expecting IJMP’s FFB production to grow at 8.9% yoy or hit 1m tonnes in FY19.

• Unit cost of production is expected to stay high in FY19. Total production cost is expected to increase yoy in FY19 amid an expected increase in fertiliser price, fertiliser application and higher estate maintenance costs. We understand that the gradual improvement in FFB production is insufficient to offset the increase in costs. Thus, unit cost of production is expected to stay high in FY19 at RM1,600- 1,800/tonne.

EARNINGS REVISION

• Maintain FY19-20 earnings estimates; introduce FY21 earnings estimate. We maintain our FY19-20 net profit forecasts, while we introduce our net profit forecast of RM114m for FY21, based on average CPO price assumption of RM2,550/tonne and FFB production growth of 7%. We are expecting EPS of 9.4 sen, 12.3 sen and 13.0 sen for FY19-21 respectively.

RECOMMENDATION

• Maintain HOLD and target price of RM2.33. Our target price of RM2.33 is based on FY20F PE 19x (-1SD of 5-year mean). We reckon that current share price has priced in the earnings weakness, but we believe this is not the right time to hone in as we understand that the earnings stability might only come in FY20-21 when FFB yield reaches 20 tonne/ha. Entry price: RM2.10.

Source: UOB Kay Hian Research - 31 May 2018