• IJMP reported a loss of RM49.9m for cumulative 9-month period, which was below our and consensus’ expectations.

• Lower revenue, higher net foreign exchange losses on US Dollar denominated borrowings and finance costs of RM35.5m vs. RM13.2m loss in 9M18, resulted in pre-tax loss of RM60.0m.

• In line with industry trend, qoq performance was impacted by lower average selling price of palm products and 15% increase in finance costs.

• We revised our FY19 and FY20 forecast lower to a loss of RM35.1m and a profit of RM2.0m respectively with new TP of RM1.47 (RM1.66 previously). Maintain SELL.

3Q19 earnings remain in red

IJMP reported a core loss of RM22.6m against RM9.1m loss in 2Q19. In spite of higher FFB production in Malaysia operations, both countries (Malaysia and Indonesia) recorded a pre-tax loss mainly due to lower ASP realised for palm products and high finance costs. Indonesia operations recorded a lower FFB production during the period, mainly due to disruption in harvesting operations due to logistical constraints in CPO shipments experienced during the quarter (refer Table 2). As a result of significantly lower ASP of palm products and sales volume, the Group’s core profit/loss reported a loss yoy during the quarter against profit of RM7.6m in 3Q18.

Impacted by lower ASP

For 9M18, IJMP recorded a loss after tax and minority interest of RM49.9m against profit of RM24.7m mainly due to lower sales volume of CPO and PKO as well as lower ASP of palm products both in Malaysia and Indonesia. Larger net foreign exchange losses on USD denominated borrowings and finance costs of RM35.5m (9M18: RM13.2m losses) and higher plantation maintenance and overheads costs against start-up yield in Indonesia operations, and compounded by production costs pressure, also aided to the lower results.

Revised earnings forecast, maintain SELL

Given the current prospect of higher cost of doing business, we tweaked our FY19 and FY20 earning forecast lower to a loss of RM35.1m and profit of RM2.0m respectively from a profit of RM7.1m and RM2.0m previously as we adjusted our margins lower on account of higher cost of sales and finance costs. Maintain SELL recommendation with new TP of RM1.47 (RM1.66 previously) based on 12-month EBITDA/share estimates of 13.4sen and P/EBITDA ratio of 11x.

Source: BIMB Securities Research - 27 Feb 2019