Results

• Below expectations. 3QFY18 core net profit of RM10.3m (qoq: -50.6%; yoy: -67.3%) brings 9MFY18 core net profit to RM48.7m (-48%). The results came in below expectations, accounting for only 41.9-52.4% of our and consensus full- year forecasts.

Deviations

• Poorer-than-expected FFB production, higher-than-expected production cost, finance cost and effective tax rate.

Dividend

• None.

Highlights

• Although revenue was higher at RM224.9m (qoq: +14.5%; yoy: +2.1%), 3QFY18 core net profit declined by 50.6% qoq and 67.3% yoy to RM10.3m, as higher earnings contribution from Malaysian operations were more than offset by: (1) Weaker performance at Indonesian operations, which was in turn affected by lower FFB production arising from the change in cropping pattern; and (2) Higher interest expense.
• YTD… 9MFY18 core net profit declined by 48% to RM48.7m as higher FFB production in Indonesia was more than offset by lower FFB production in Malaysia, higher production cost in both Malaysian and Indonesian operations, higher finance cost and tax expense.
• Outlook: We project FFB output to grow by circa 7% to 923k tonnes in FY18 (from 862k 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 FY18-20 core net profit forecasts by 21.7%, 18.2% and 10.1% respectively, largely to account for higher production cost and finance cost assumptions.

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.

Valuation

• Post earnings revision, our TP on the stock was lowered by 13.6% to RM2.09 based on 20x revised FY19 EPS of 10.4 sen. Maintain SELL rating on the stock.

Source: Hong Leong Investment Bank Research - 28 Feb 2018