Results

• Below Expectations. 1QFY17 core net profit of RM10.4m (yoy: -65.0%; qoq turned around from net loss) came in below expectations, accounting for 10% and 8% of our and consensus full-year forecasts.

Deviations

• Lower than expected FFB output affected by dry season in the previous financial year and higher than expected cost of production.

• 1Q is seasonally a slow quarter for IJMP (17-22% of full year net profit). We expect a recovery in FFB output in the upcoming quarters.

Dividend

• None declared.

Highlights

• IJMP recorded 1QFY17 revenue of RM139.4m (qoq: +21.1%, yoy: -1.7%). Despite a significant qoq improvement, we deem it below expectations as lower FFB production remained a drag, despite a higher realised CPO price (average of RM2,570 and RM2,211 in Malaysia and Indonesia respectively).

• Qoq, IJMP recorded an improved profitability with net profit of RM22.2m from a loss of RM16.5m in 4QFY16. Stripping out the exceptional items of RM11.8m (RM5.4m being gain from FX movement on the US$ denominated borrowings and RM6.4m being fair value gains on CPO pricing swaps)n core net profit turned around to RM10.4m (4QFY15: -RM25.8m).

• Higher than expected production cost also had an impact on 1QFY17 earnings and is expected to continue for the year.

• Dry weather in FY16 is expected to depress FFB output throughout FY17.

Risks

• Weaker-than-expected FFB production

• A sharp decline in vegetable oil prices.

Forecasts

• Net profit forecast is revised lower by 7% for FY17 to factor in the lower FFB output and higher cost of production. (FY17 EPS: 11.3 sen down from 12 sen). FY18 earnings forecast is kept unchanged.

Rating

• SELL

• Positives – (1) Strong Balance Sheet

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

Valuation

• Maintain (SELL). Target price is unchanged at RM2.90 pegged at unchanged 20x PE of FY2018 earnings.

Source: Hong Leong Investment Bank Research - 25 Aug 2016