• IJMP’s 1H17 net profit of RM69.4m was in-line with our expectation, making up 58% of our full year forecast.

• The better results was mainly due to higher average palm product selling price realised, aided by net foreign exchange gains on US Dollar denominated borrowings of RM14.8m as opposed to a losses of RM51.7m recorded in 1H16.

• Group’s CPO production was 10% lower yoy as the El-Nino weather phenomenon has negatively impacted FFB production by 8%.

• Maintain our FY17 and FY18 earnings forecast, whilst TP is adjusted to RM3.06 (RM2.99) as we roll over our valuation to FY18.

Within expectations. IJMP’s core net profit of RM54.7 came in within our expectation and that of consensus’ estimates. Revenue surged by 19% to RM340.8m as higher average palm product selling price has more than offset the impact of lower FFB and CPO production. Earnings improved significantly resulting from 1) net foreign exchange gains on US dollar denominated borrowings of RM14.8m arising from weakening of the USD against rupiah during the period (net loss of RM51.7m in 1H16), and 2) higher CPO and PKO prices realised. As such, EBIT margins improved to 32.4% from 9.3% recorded in 1H16.

Performance by geographical segments. Indonesia recorded a higher revenue of RM110.1m (yoy: +31.8%) due to higher commodity prices and improved FFB production as larger area reaching maturity despite the effect of the dry weather. PBT turned positive to RM24.9m (1H16: loss RM55.9m) resulted by net foreign exchange gains on US Dollar denominated borrowing as well as higher CPO and PKO price realised during the period. CPO and PKO price increase 25% and 85% respectively to RM2,411/MT and RM4,452/MT.

For Malaysian operation, earnings improved by 56.9% to RM77.8m mainly due higher CPO and PKO price realised. Hence, margin improved to 33.7% from 24.4% in 1H16 as CPO and PKO prices increased 23% and 74% respectively to RM2,588/MT and RM5,374/MT.

Earnings forecast maintained. We keep our FY17 and FY18 earnings forecast unchanged. IJMP’s performance could be even better if not for 1) bigger immature and young mature planted areas – yield may not reach its peak soon; 2) high cost required to maintain a fairly young mature areas; 3) exposure to the foreign currency exchange movement – 100% of its borrowing is denominated in USD; and 4) the introduction of the Indonesian palm oil export levy and export tax of USD50/MT and USD3/MT respectively.

Upgrade to HOLD with new target price of RM3.06 (RM2.99) as we rolled over our valuation to FY18, based on PER 22x (IJMP’s 3-years average PER).

Source: BIMB Securities Research - 29 Nov 2016