- Maintain HOLD on IJM Plantations (IJMP) with an unchanged fair value of RM3.60/share. Our fair value implies a PE of 27x on IJMP’s FY16F EPS. We have raised IJMP’s FY15F EPS by 6%.

- IJMP’s 9MFY15 results were above our expectations but within consensus estimates. IJMP’s 9MFY15 net profit included unrealised forex losses of RM27.0mil and a fair value gain on CPO swap of RM5.5mil.

- In spite of lower FFB production and CPO price QoQ in 3QFY15, IJMP’s EBIT climbed by 12.8% to RM49.9mil. Also, EBIT margin expanded from 25.5% in 2QFY15 to 27.2% in 3QFY15.

- We attribute the margin enhancement to lower fertilisation in 3QFY15 due to the rainy season in Sabah.

- Core pre-tax profit of the Indonesia unit increased from RM4.8mil in 2QFY15 to RM9.4mil in 3QFY15 as turnover expanded by 13.8%.

- CPO production in Indonesia climbed by 10.1% QoQ in 3QFY15 due to higher FFB processed from external parties. FFB purchases expanded by 15.8% in contrast to the 3.4% fall in FFB production QoQ in 3QFY15.

- IJMP’s Indonesia division recorded a core pre-tax profit of RM16.9mil in 9MFY15 (ex-forex) compared with RM13.3mil (ex-forex) in 9MFY14. We estimate IJMP’s production cost in Indonesia at RM2,000/tonne currently.

- FFB production in Indonesia surged 118.4% YoY to 207,262 tonnes in 9MFY15. Indonesia accounted for 29.7% of group FFB output in 9MFY15.

- Average CPO price realised in Indonesia was RM2,135/tonne in 9MFY15 against RM2,168/tonne in 9MFY14. IJMP’s average CPO price realised in Indonesia of RM2,135/tonne was RM170/tonne lower than the price of RM2,305/tonne recorded in Malaysia in 9MFY15.

- IJMP’s turnover climbed 16.5% YoY to RM534.9mil in 9MFY15 on the back of higher CPO price and production. Group EBIT margin climbed from 19.8% in 9MFY14 to 25.6% in 9MFY15. Pre-tax profit of the Malaysia unit improved from RM73.4mil in 9MFY14 to RM114.3mil in 9MFY15. We estimate IJMP’s production cost in Malaysia at RM1,400/tonne.

- FFB production in Malaysia rose by 10.1% YoY to 490,404 tonnes in 9MFY15. Average CPO price realised in Malaysia was RM2,305/tonne in 9MFY15, which was similar to the price of RM2,312/tonne achieved in 9MFY14.

Source: AmeSecurities