Results

• 1HFY03/15 core net profit of RM126.7m (+62.4%) was slightly ahead of expectations, accounted for 53.8-55.2% of consensus and our full-year estimates.

Deviations

• Better-than-expected FFB output.

Highlights

YTD… 1HFY03/15 core net profit increased by 62.4% to RM71.1m mainly on the back of higher FFB output (from both Malaysian and Indonesian operations) and palm product selling prices. Overall FFB production increased by 40.7% to 461k mt, due to more planted area in Indonesia operations attained maturity (which has in turn resulted in FFB contribution from Indonesia rising by 158% to 133.1k mt).

QoQ… 2QFY03/15 core net profit declined by 2.1% to RM35.2m mainly on the back of lower palm product selling prices and higher income tax expense, which altogether more than offset a 12% increase in overall FFB production.

Risks

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

Forecasts

• We raised our FY03/15-16 net profit forecasts by 1.1-2.4%, mainly to account for a slightly higher FFB yield assumption.

Rating

HOLD

Positives

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

Negatives

• (1) Demanding valuation; and (2) Low liquidity.

Valuation

• Maintain TP of RM3.52 (based on unchanged 17x FY03/17 EPS of 20.7 sen), as we are leaving our FY03/17 net profit forecast unchanged. 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 .

Source: Hong Leong Investment Bank Research - 26 Nov 2014