Results

1QFY03/15 core net profit of RM35.9m (+283%) accounted for 27.9% of our full-year forecast. We consider the results within our expectation, as we expect lower CPO prices to drag IJMP’s results in the next few quarters (albeit partly offset by higher FFB production). Against consensus, the results accounted for 23.4% of consensus full-year forecast.

Deviations

None

Dividend

None

Highlights

YoY… 1QFY03/15 core net profit expanded by 3x to RM35.9m mainly on the back of higher palm product prices, which boosted pretax profit at Malaysian operations to RM38.2m (from RM9.8m in the previous year). Excluding unrealized forex loss, Indonesian operations turned around with a small pretax profit of RM2.8m (from a loss of RM0.4m a year ago) mainly on higher CPO selling price.

QoQ… Core net profit increased by 4.4% to RM35.9m mainly on the back of a lower effective tax rate, which offset lower CPO sales volume in Malaysia

Risks

• Weaker-than-expected FFB production and OER;
• A sharp increase in production cost; and
• A sharp decline in vegetable oil prices.

Forecasts

Maintained.

Rating

HOLD

Positives – (1) Strong FFB contribution from Indonesia; and (2) Strong balance sheet.

Negatives – (1) Demanding valuation; and (2) Low liquidity.

Valuation

We are maintaining our TP of RM3.52 (based on unchanged 17x FY03/17 EPS of 20.7 sen) as well as Hold recommendation on the stock for now, pending further update with management. While we like IJMP for its strong FFB output growth in the coming years and healthy balance sheet, we believe further upside to its share price will likely be capped by its pricey valuations (in particularly, post our sector-wide CPO price assumption reduction recently) and the recent weak CPO price sentiment.

Source: Hong Leong Investment Bank Research - 27 Aug 2014