• IJMP’s 1H19 core earnings of RM4.1m came-in below ours and consensus’ expectations.

• Lower revenue, higher net foreign exchange losses on US Dollar denominated borrowings and finance costs of RM53.53m vs. RM9.32m loss in 1H18, resulted in pre-tax loss of RM58.0m.

• In line with industry trend, qoq performance was impacted by lower sales volumes and palm products prices.

• We revised our FY19 and FY20 earnings forecast lower to RM7.14m and RM6.98m respectively with new TP of RM1.66 (RM1.70 previously). Maintain SELL.

2Q19 earnings remain in red

IJMP reported a core loss of RM9.1m against RM13.2m profit in 1Q19. In spite of higher FFB production in Indonesia operations, both country (Malaysia and Indonesia) recorded a pre-tax loss mainly due to lower sales volumes and lower ASP realised for palm products. Although Indonesia operations recorded a higher FFB production during the period, the Group registered a higher loss before taxation of RM31.7m vs. a loss of RM26.3m in 1Q19 mainly due to lower revenue as well as lower stock movement in addition to foreign exchange losses.

Impacted by lower ASP

IJMP recorded a loss after tax and minority interest of RM47.9m against profit of RM18.9m in 1H18 mainly due to lower sales volume of PKO and ASP of palm products for both in Malaysia and Indonesia. Higher net foreign exchange losses of RM30.95m on USD denominated borrowings (1H18: RM0.2m losses) and higher plantation maintenance and overheads costs against start-up yield in Indonesia operations compounded by production costs pressure in Malaysia operations also aided to the lower results.

Revised earnings forecast, maintain SELL

Given current prospect of low palm products prices, we expect CPO price to trade within RM1,900/MT – RM2,200/MT in 1H2019 versus RM2,230/MT – RM2,556/MT in 1H2018. 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 tweaked our FY19 and FY20 earning forecast lower to RM7.1m and RM6.9m respectively from RM68m and RM96m previously as we adjusted our production, palm product prices and margins lower. Maintain SELL recommendation with new TP of RM1.66 (RM1.70 previously) based on IJMP’s 2-yrs average P/BV of 0.9x and FY18 BV/share of RM1.84.

Source: BIMB Securities Research - 27 Nov 2018