Results

• In-Line. 6M17 core net profit of RM51.3m (yoy:-32.9%) came in within ours but below consensus expectations, accounting for 51.7% and 41.7% of our and consensus full-year forecasts.

Dividend

• None declared.

Highlights

• Qoq: Core net profit more than tripled from RM10.4m to RM37.9m due to higher FFB production coupled with higher realized selling price of CPO and PKO.
• Yoy: Core net profit fell 18.9% yoy to RM37.9m due to higher costs incurred from replanting in Indonesia.
• YTD: Net profit rose to RM69.4m from RM19.7m (287.3% yoy). However, the overall better financial performance was compounded by the net foreign exchange gains of RM14.8 million as opposed to the foreign exchange losses of RM51.7 million recorded in the YTD FY16 on its US Dollars denominated borrowings.
• As of 30 Sept 2016, IJMP’s borrowings denominated in USD stand at RM881m.
• Despite a larger area in Indonesia plantations turning mature, FFB production continues to stay flat due to longer than expected effect from the dry weather.
• We expect FFB production, particularly in Indonesia to continue to improve as its plantations rebound from dry weather in CY17.
• Production costs for the group are expected to escalate as a result of foreign worker levy and increase in young mature areas incurring full fixed plantation maintenance and overhead costs set against the start-up crop yield.

Catalysts

• CPO price remaining astronomically high in FY17 at current levels of ~RM3,000/mt against our CPO price assumption of RM2,500/mt for IJMP coupled with the expected rebound in FFB production.

Risks

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

Forecasts

• Unchanged

Rating

SELL (↔)

• Despite the recent rally in CPO and PKO price as well as the anticipated rebound in FFB production, IJMP remains expensive at its current price.

Valuation

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

Source: Hong Leong Investment Bank Research - 29 Nov 2016