IJMP’s 1HFY19 core net profit of RM3.4m (-90.9%) disappointed, accounting for only 5.6-5.8% of our and consensus full-year forecasts. Key variances against our forecast include lower-than-expected palm product prices and sales volume. We cut FY19-20 core net profit forecasts by 36.3-79.5% to account for (i) lower realised palm product prices YTD, (ii) lower output for Malaysian operations in FY19, and (iii) higher production cost assumptions. Maintain SELL rating with lower TP of RM1.21 (from RM1.89 previously) based on 20x revised FY03/20 EPS of 6 sen.

Missed expectations. 1HFY19 core net profit of RM3.4m (-90.9% YoY) disappointed, accounting for only 5.6-5.8% of our and consensus full-year forecasts. Key variances against our forecast include lower-than-expected palm product prices and sales volume.

QoQ & YoY. 2QFY19 turned into a core net loss of RM9.7m (from core net profits of RM13.2m in 1QFY19 and RM19.5m in 2QFY18) mainly due to (i) lower palm product prices, (ii) lower FFB output for Malaysian operations (arising from adverse effect of earlier prolonged dry weather), and (iii) lower CPO sales volumes in both Malaysian and Indonesian operations.

YTD. 1HFY19 core net profit plunged by 90.9% to RM3.4m due mainly to lower palm product prices, lower FFB output in Malaysian operations and lower PKO sales volume.

Forecasts. We cut FY19-20 core net profit forecasts by 79.5% and 36.3%, largely to account for (i) lower realised palm product prices YTD, (ii) lower output for Malaysian operations in FY19, and (iii) higher production cost assumptions.

Maintain SELL, with lower TP of RM1.21. Post downward revision in our core net profit forecasts, we lower our TP on the stock by 36% to RM1.21 based on 20x revised FY03/20 EPS of 6 sen. Despite recent share price retracement, we maintain our SELL rating on the stock, as valuation remains pricey post downward revision in our core net profit forecasts (at current share price of RM1.78, IJMP is trading at FY19-20 P/E of 124.2x and 29.5x).

Source: Hong Leong Investment Bank Research - 27 Nov 2018