• IJMP’s 1Q19 core earnings of RM13.2m was in-line with our and consensus’ expectations.
• Net unrealized foreign exchange losses on USD denominated borrowings of RM30.88m vs. RM0.84m loss in 1Q18, resulted in pre-tax loss of RM26.3m.

• In line with industry trend, qoq performance was impacted by lower ASP of palm products compounded with net unrealized foreign exchange loss of RM30.88m vs. RM10.82m loss in 4Q18 on USD denominated borrowings.

• We maintain our FY19 and FY20 earnings forecast of RM68m and RM96.8m with TP of RM1.70. Maintain SELL.

FY18 core earnings within estimate

IJMP reported a core profit of RM13.2m against RM13.0m in 1Q18. In spite of higher FFB production in Indonesia operations, both country (Malaysia and Indonesia) recorded a lower yoy PBT mainly due to lower ASP realised for palm products. This was also compounded by higher plantation maintenance costs and overheads in Indonesia operations as increased young mature area, as well as additional depreciation associated with the commencement of the second palm oil mill.

Impacted by lower ASP

On quarterly basis, although revenue increased 30% to RM183m, IJMP recorded a pre-tax loss of RM26.3m mainly due to lower sales volume of PKO in Malaysia operations, as well as ASP of palm products for both in Malaysia and Indonesia. Higher net unrealised foreign exchange loss of RM30.88m on USD denominated borrowings (4Q18: R10.82m losses) and production costs pressure from the increase in young mature areas in Indonesia also aided to the lower results.

No change in forecast, maintain SELL

Although we estimate that FFB production to increase significantly in the future due to large area of its young estates in Indonesia attaining maturity and high yielding age bracket, we believe that the earnings upside would be limited by higher cost of production and lower ASP of palm products moving forward. As such, we maintain our FY19 earning forecast with SELL recommendation. Maintain TP of RM1.70, based on FY19 EPS and PER of 22x.

Source: BIMB Securities Research - 29 Aug 2018