Results

• Above expectations. 9M17 core net profit of RM93.6m (yoy: +41.6%) came in above our expectation, accounting for 94% of our full-year forecasts. Against consensus, the results came in within expectations, accounting for 78% of consensus full-year forecasts.

Deviations

• Higher-than-expected realised PKO selling price and lower- than-expected production costs in Indonesia

Highlights

• Yoy: 3QFY17 performance returned to the black with a core net profit of RM42.3m from a net loss of RM10.3m in 3Q16. The sharp improvement in performance was driven mainly by: (1) Significantly higher palm product prices; and (2) Normalization of tax expense (recall in 3QFY16, IJMP recorded a jump in effective tax rate arising from tax treatment of forex movement in Indonesia).
• Qoq: Core net profit rose 5.8% due to seasonality (Oct-Dec is historically the best quarter for FFB production) as well as higher realized CPO and PKO prices.
• Ytd: Core net profit rose 41.6% to RM93.6m, boosted mainly by higher palm product prices, which more than mitigated higher production cost (as the increase in young mature areas, which have resulted in full fixed plantation maintenance and overhead costs set against the start-up crop yield).
• Outlook: Moving into FY18, we expect FFB production to increase by ~10% (from an estimated total FFB production of 848k mt in FY17), as more areas (in Indonesia) mature and move into higher yield brackets (which will in turn drive unit production cost lower).

Risks

• Weaker-than-expected FFB production.
• A sharp increase in production cost.
• A sharp decline in vegetable oil prices.
• Occurrence of another dry spell.

Forecasts

• We raise our FY17/18/19 net profit forecasts by 21%, 4%, and 4% respectively, as we incorporate higher expected PKO prices in FY17 as well as lower cost of production in Indonesia as a larger area of land turns mature and affords the group better cost savings via economies of scale.

Rating

SELL (↔)

• Although we like IJMP for its decent FFB output growth prospects (due to the young age profile in its Indonesian estates), we believe upside is capped by its rich valuations (FY17-18 P/E of 24x and 22.8x).

Valuation

• Maintain SELL rating, with higher Target Price of RM2.90 (from RM2.81 previously) after incorporating our earnings forecast revision. Our TP is based on 20x revised FY18 EPS of 14.5 sen.

Source: Hong Leong Investment Bank Research - 24 Feb 2017