Results

• Below expectations. 1Q18 core net profit of RM17m (qoq: +16%; yoy: +27%) came in below expectations, accounting for just 13% of consensus and our full-year forecasts.

Deviations

• Higher-than-expected production cost and effective tax rate (33% vs. projection of 23%).

Dividend

• None.

Highlights

• Yoy: 1Q18 core net profit rose 27% to RM17m (from RM13.4m in 1QFY17), thanks to higher palm product prices and higher FFB output (as more planted areas in Indonesia graduated into the mature category) and higher CPO average selling price (ASP).
• Qoq: 1Q18 core net profit increased by 16% to RM17m, due to seasonality as FFB production is generally stronger in April-June as well as Indonesian plantations yielding higher FFB due to a larger area attaining maturity.
• Outlook: We project FFB output to grow by circa 12% to 944,783 tonnes in FY18 (from 862,435 tonnes in FY17) as the young age profile of its planted landbank in Indonesia turns increasingly young mature and yielding more FFB. Given the young age profile, coupled with the absence of weather-induced output disruptions, we expect earnings to rebound in the coming quarters as FFB production ramps up.

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 lower our FY18/19/20 earnings forecasts by 21%/14%/11% respectively to account for higher than expected tax rate and higher cost of production going forward.

Rating

SELL (↔)

• With a larger area of IJMP’s young estates in Indonesia attaining maturity, we expect the group’s FFB production to increase significantly going forward. Although we like IJMP for its decent FFB output growth prospects we believe it IJMP is overvalued at current price levels (at current share price, IJMP is trading at FY19-20 P/E of 24.8 & 24.1 respectively).

Valuation

• We maintain our Sell call with a lower TP to RM2.42 from RM2.78 after the downward revision to our forecast (based on unchanged 20x PE of FY19 EPS).

Source: Hong Leong Investment Bank Research - 24 Aug 2017