• IJMP’s FY17 net earnings of RM115.1m was in-line with our expectation, making up 96% of our and 81% of consensus’ full year forecast.

• The better results was mainly due to higher ASP realized aided by gains in net foreign exchange of RM1.8m (FY16: RM0.8m losses) and CPO swap contracts of RM5.0m (RM15.3m losses in FY16).

• Group’s CPO production was 4% lower yoy as the lag impact of dry-weather phenomenon slowed the growth in FFB production by 2%.

• Maintain our FY17 and FY18 earnings forecast with unchanged TP of RM3.06.

Higher ASP realized

Revenue for FY17 surged by 35% to RM753.7m as higher average palm product selling price more than offset the impact of lower FFB and CPO production. The better performance was also aided by higher PKO and CPO sales in Indonesia operations that increased by 38% and 0.3% yoy to 5,501MT and 73,041MT respectively. Earnings improved significantly to RM115m (from RM24m previously) resulting from 1) higher palm products price realized, 2) gains in net foreign exchange of RM1.8m (net loss of RM0.8m in FY16), and 3) gains in CPO swap contracts of RM5.0m (FY16: RM15.3m loses). As a result, EBIT margin was higher at 25.3% compared to 11.2% recorded in FY16.

Indonesian operations lifted Group earnings higher

Indonesian operation recorded a higher revenue of RM286.4m (yoy: +52%) in FY17 mainly due to higher commodity prices as well as improved FFB production as larger area reaching maturity. In-line with the higher revenue, PBT improved significantly to RM38.3m (FY16:RM0.3m), hence lifted margins higher to 13.4% as opposed to 0.2% in FY16. CPO and PKO price increased 36% and 109% respectively to RM2,589/MT and RM5,473/MT.

For Malaysian operation, earnings more than doubled to RM130.2m on the back of a 26.5% increase in revenue to RM467.3m. This was also due higher CPO and PKO price realized. Hence, margin improved to 27.9% from 13.6% in FY16 as CPO and PKO prices increased 29% and 77% respectively to RM2,753/MT and RM5,830/MT.

Lower sales volume dragged qoq revenue lower

For the 4Q period, revenue slipped 13% versus 3Q (+67% when compared to 4QFY16) mainly due to lower sales volume especially from Malaysian operations. Both CPO and PKO for Malaysia registered declined in sales by 28% and 25% respectively to 26,496MT and 3,022MT (Indonesia: CPO 22,025MT (+19%); PKO 1,000MT (-60%)). However, PBT recorded an improvement by 28% to RM36.9m due to net unrealized foreign exchange gains of RM3.9m as opposed to a loss of RM16.9m in 3Q17.

What to expect in the coming quarter

As for coming quarter, we expect FFB production growth to rise in the lower teens on qoq basis, with better performance to be seen in 2QFY18. This will be driven by higher crop especially from Indonesian operation, with Malaysian operations production likely to be flat. On the other hand, commodity prices are expected to stay in the region of RM2,600/MT to RM2,800/MT up until June 2017.

Interim dividend of 7sen, no change in earnings forecast

A single interim dividend of 7sen (FY16:5sen) was declared and shall be paid on 19 July 2017. We maintain our earnings forecast for FY17 and FY18 respectively. Hence, maintain HOLD recommendation with TP of RM3.06, based on PER 22x (IJMP’s 3-years average PER) and FY18 EPS.

Source: BIMB Securities Research - 25 May 2017