Results

FY03/13 core net profit of RM119.6m (-29%) came in within our expectation at 98.8% of our forecast. Against consensus, the results came in below, at only 93.5% of consensus estimates.

Dividend

Declared single-tier interim DPS of 7 sen (higher than 6 sen we projected).

Highlights

YTD. FY03/13 core net profit declined by 31.4% to RM115.5m mainly on lower CPO and PKO sales volume, coupled with lower palm product prices.

QoQ. Despite revenue rising by 22.8% (mainly on higher CPO and PKO sales volume, as well as increased contribution from Indonesia operations), 4QFY03/13 core net profit dipped 20.5% to RM23.9m, largely due to: (1) Seasonally higher production cost; (2) A 13.4% decline in realized PK price; and (3) Higher finance costs.

YoY. 4QFY03/13 core net profit rose by 32.4% mainly on higher FFB production arising from a shift in cropping pattern and lower unit cost production, which altogether more than offset lower realized CPO and PKO prices (which declined by 26.9% and 47.7% respectively).

FFB production from Indonesia more than doubled to 55.6k tonnes in FY13, and we continue to see strong FFB growth from Indonesia for the next few years (as more areas coming into maturity).

Risks

• Earlier-than-expected recovery in the world’s major economies, resulting in higher edible oil demand and prices;
• Weather uncertainties revisit, resulting in supply distortion, hence boosting prices of edible oil.

Forecasts

• Maintained.

Rating

SELL

• Negatives – (1) Weak global economic outlook and impending excess supply of CPO will affect both demand and prices of CPO; and (2) Demanding valuation.
• Positives – (1) Strong FFB contribution from Indonesia post FY13; and (2) Strong balance sheet.

Valuation

• TP maintained at RM2.43 based on unchanged 15x CY2014 EPS of 16.2 sen. While we like IJMP for its strong FFB growth, share price upside is capped by its rich valuation (at FY03/15 P/E of 17.8x) as well as the weak earnings outlook.

Source: Hong Leong Investment Bank Research - 29 May 2013