Investment Highlights

• Maintain BUY on IJM Plantations (IJMP) with an unchanged fair value of RM3.40/share. Our fair value implies a FY18F PE of 22x.

• At first glance, IJMP's 1QFY18 results appear to fall short of our forecast and consensus estimates. In spite of this, we are keeping our earnings forecast for IJMP as we expect 2QFY18 and 3QFY18 to be stronger. We believe that manuring and fertilisation expenses would be lower in 2QFY18 and 3QFY18.

• IJMP's net profit (ex-forex) eased by 10.6% YoY to RM17.7mil in 1QFY18 due to lower gains on CPO price swaps. Excluding the fair value gains on CPO price swaps, IJMP's net profit would have risen by 27% YoY in 1QFY18.

• IJMP recognised a fair value gain on CPO price swap of RM0.7mil in 1QFY18 against RM6.4mil in 1QFY17.

• IJMP's FFB production grew by 26.1% YoY in 1QFY18. FFB output rose by 3.8% in Malaysia while the Indonesia unit recorded a 54.3% increase in production. Indonesia accounted for 53.9% of IJMP's FFB output in 1QFY18.

• Average realised CPO price in Malaysia expanded by 7.1% from RM2,570/tonne in 1QFY17 to RM2,753/tonne in 1QFY18. However, palm kernel oil price fell from RM4,954/tonne in 1QFY17 to RM4,399/tonne in 1QFY18.

• The Indonesia division registered a core pre-tax profit (exunrealised forex loss of RM0.8mil) of RM8.4mil in 1QFY18 vs. RM12.3mil in 1QFY17. The Indonesia unit faced production cost pressures from higher mature areas in 1QFY18.

• IJMP realised an average CPO price of RM2,502/tonne in Indonesia in 1QFY18 against RM2,411/tonne in 1QFY17. Average price difference between CPO in Malaysia and Indonesia widened from RM159/tonne in 1QFY17 to RM251/tonne in 1QFY18.

• Net gearing edged up from 29.7% as at end-March to 31.0% as at end-June 2017. All of IJMP's gross borrowings of RM869.0mil were denominated in USD.

Source: AmInvest Research - 24 Aug 2017