Results

• FY03/16 core net profit of RM33.4m (yoy: -6.9%; qoq: +30.6%) came in within expectations, accounting for only 18.1% and 22% of consensus and our full-year forecasts.

Deviations

• Lower-than-expected realized CPO selling price.

Dividend

• -

Highlights

• YoY… Despite a turnaround at the Indonesian operations (which was in turn driven by a 37% increase in FFB production), 1QFY03/16 core net profit declined by 6.9% to RM33.4m mainly on the back of lower palm product prices and FFB production in Malaysian operations, as well as higher finance costs.

• QoQ… 1QFY03/16 core net profit increased by 30.6% to RM33.4m, and the sharp improvement was due mainly to higher FFB production (as 4Q was seasonally lower) in both Malaysian and Indonesian operations.

Risks

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

Forecasts

• Maintained for now, pending a review (with downward bias) in our sector-wide CPO price assumption. Ceteris paribus, every RM100/mt reduction in our average CPO price assumption will result in a 10% reduce in our FY03/16 earnings forecast.

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) and HOLD recommendation for now, pending a review in our sector-wide CPO price assumption, which will in turn result in lower earnings forecasts (hence our TP). 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 as well as the current weak CPO price sentiment.

Source: Hong Leong Investment Bank Research - 26 Aug 2015