-  Maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM3.48/share for now. Our fair value is based on a FY15F PE of 17.3x on fully diluted EPS.

-  IJMP’s 9MFY14 results were above our expectations and consensus estimates. The higher-than-expected core net profit was due to a low effective tax rate and larger-thanestimated turnover.

-  We believe that IJMP bought a substantial amount of FFB from third parties, which boosted CPO production. This helped mitigate the fall in CPO price. We estimate that FFB purchases accounted for 39% of FFB processed in 9MFY14F versus 21% in FY13.

-  Revenue expanded by 30.7% YoY to RM459mil in 9MFY14 while EBIT slid by 33.2% to RM91mil. EBIT margin eased from 38.8% in 9MFY12 to 19.8% in 9MFY13.

-  Turnover of the plantation division in Malaysia rose by 8.3% YoY to RM363.6mil in 9MFY14 due to an increase in CPO production, which was boosted by FFB purchases and sales of old inventory.

-  CPO sales expanded by 20.2% YoY in 9MFY14, which compensated for a 15.9% fall in average CPO price realised.

-  Average CPO price realised was RM2,312/tonne in Sabah in 9MFY14 against RM2,749/tonne in 9MFY13. Average CPO price realised was RM2,168/tonne in Indonesia in 9MFY14.

-  IJMP’s plantation unit in Indonesia recorded a pre-tax profit of RM13.3mil in 9MFY14 after stripping out the unrealised forex loss. The division recorded a pre-tax loss of RM2.5mil in 9MFY13.

-  FFB production in Indonesia climbed 151.6% from 37,719 tonnes in 9MFY13 to 94,887 tonnes in 9MFY14. Indonesia accounted for 17.6% of group FFB output in 9MFY14.

-  On a QoQ basis, IJMP’s core net profit improved by 44.1% to RM48.9mil in 3QFY14 on the back of higher palm oil production and CPO price.

-  Group FFB production expanded 17.4% QoQ to 210,772 tonnes in 3QFY14. Average CPO price realised in Sabah was RM2,416/tonne in 3QFY14 versus RM2,270/tonne in 2QFY14.

Source: AmeSecurities