• IJMP’s 1Q18 net earnings of RM16.9m was below ours and consensus’ expectations.

• Despite higher revenue of RM184.6m vs. RM139.4m in 1Q17, adjusted earnings was lower by 11% to RM17.7m mainly due to net unrealized foreign exchange loss on USD denominated borrowing of RM0.8m as opposed to a gain of RM5.4m in 1Q17.

• On qoq basis, revenue was lower by 4% mainly due to lower ASP of CPO and PKO during the period.

• Maintain our FY18 and FY19 earnings forecast with unchanged TP of RM3.06.

Lower ASP realized

In spite of higher FFB production and CPO sales, both Malaysia and Indonesia operations recorded a lower earnings qoq mainly due to 1) lower ASP of CPO and PK; 2) net unrealized foreign exchange losses of RM0.8m as opposed to gain of RM3.9m in 4Q17 on its USD-denominated borrowings, and 3) lower fair value gains on crude palm oil pricing swaps of RM0.7m vs. RM3.4m in 4Q17.

On yoy basis, revenue increased by 32% to RM184.6m mainly due to higher FFB and CPO production as well as sales volume of both CPO and PKO aided by the higher ASP of CPO. However, PBT was lower by 36% as both Malaysia and Indonesia recorded lower earnings by 18% and 57% respectively to RM17.3m and RM7.5m. The lower earnings resulted from net unrealized foreign exchange losses of RM0.8m as opposed to gain of RM5.4m in 1Q17 on USD-denominated borrowings, and lower fair value gains on crude palm oil pricing swaps of RM0.7m vs. RM6.4m in 1Q17.

What to expect in the coming quarter

As for coming quarter, we expect IJM to maintain its FFB production level and to mitigate any shortfall in ASP. This will be driven by higher crop output, especially from Indonesian operation, while Malaysian operations production likely to be flat.

Maintaining our forecast

We maintain our earnings forecast for FY18 and FY19. Hence, we maintain HOLD with an unchanged TP of RM3.06, based on PER 22x (IJMP’s 3-years average PER) on FY18 EPS.

Source: BIMB Securities Research - 24 Aug 2017