- Maintain HOLD on IJM Plantations (IJMP) with a higher fair value of RM3.48/share based on a FY15F PE of 20x on basic EPS.

- At first glance, IJMP’s 1HFY14 results came within our forecast but below consensus estimates. However excluding the RM38mil unrealised forex loss on the US$185mil borrowings, the group’s 1HFY14 core net profit would have exceeded our expectations.

- We have revised IJMP’s FY14F core EPS upwards to account for better-than-expected EBIT margin.

- The unrealised forex loss caused IJMP’s pre-tax profit to swing into a negative RM0.9mil in 1HFY14. The group’s pre-tax loss was RM3.9mil in 2QFY14.

- After getting hit by sales of old and low-margin CPO inventory in 1QFY14, the group’s plantation division in Malaysia recovered in 2QFY14.

- We estimate that only 9.5% of IJMP’s CPO sales in 2QFY14 came from the CPO drawn down from FY13’s inventory compared with 15% in 1QFY14.

- We believe that the CPO from FY13’s inventory had been fully drawn down as at end-2QFY14. As such, we expect IJMP’s core EBIT margin to improve further in 3QFY14.

- Pre-tax loss of the Indonesian plantation unit widened from RM7.7mil in 1HFY13 to RM31.9mil in 1HFY14. This was mainly due to unrealised forex loss on the US$ borrowings. Recall that the Indonesian Rupiah had depreciated significantly against the US$ in 2QFY14.

- IJMP recorded a FFB output growth of 14.6% YoY in 1HFY14. FFB production in Indonesia climbed by 197.5% from 17,345 tonnes in 1HFY13 to 51,610 tonnes in 1HFY14 while FFB output in Malaysia grew by 2.8%.

- Indonesia accounted for 15.8% of IJMP’s FFB production in 1HFY14 versus 6.1% in 1HFY13.

- Average CPO price realised was RM2,253/tonne in Malaysia in 1HFY14, which was 25.5% lower than the average price of RM3,024/tonne recorded in 1HFY13.

- IJMP’s average CPO price realised of RM2,253/tonne in 1HFY14 was close to MPOB’s (Malaysian Palm Oil Board) average spot price of RM2,296/tonne for Sabah. 

Source: AmeSecurities