IJMP’s 1QFY19 core net profit of RM13.2m (QoQ: -36.4%; YoY: -28.6%) missed expectations, accounting for only 14.1-18.8% of consensus and our full-year forecasts, mainly on the back of (i) lower-than-expected FFB output contribution from Malaysian estates, and (ii) higher-than-expected finance cost. We cut our FY19-20 core net profit forecasts by 8.4-12.3%, to account for lower FFB output assumption for Malaysian estates and higher finance cost assumption. Correspondingly, TP was cut by 8.3% to RM1.89, while rating on the stock was cut to SELL (from Hold previously).

Missed expectations. 1QFY19 core net profit of RM13.2m (QoQ: -36.4%; YoY: - 28.6%) came in below expectations, accounting for only 14.1-18.8% of consensus and our full-year forecasts. Key culprits to the disappointing set of results include (i) lower-than-expected FFB output contribution from Malaysian estates, and (ii) higherthan-expected finance cost.

QoQ. Despite revenue was higher by 29.6%, 1QFY19 core net profit declined by 36.4% to RM13.2m mainly on the back of lower palm product prices, lower FFB output contribution from Malaysian estates, and higher production cost.

YoY. 1QFY19 core net profit declined by 28.6% to RM13.2m, as higher FFB output contribution from Indonesia was more than offset by lower FFB contribution from Malaysia and lower palm product prices.

Forecast. We cut our FY19-20 core net profit forecasts by 12.3% and 8.4% respectively, largely to account for lower FFB output assumption for Malaysian estates and higher finance cost assumption.

Downgrade to SELL with lower TP of RM1.89. Post downward revision in our core net profit forecast assumptions, we cut our TP on the stock by 8.3% to RM1.89 based on 20x revised FY03/20 EPS of 9.5 sen. Downgrade from Hold to SELL as valuations (in terms of P/E) have become loftier after downward revision and recent share price run-up.

Source: Hong Leong Investment Bank Research - 29 Aug 2018