IJMP’s core net loss of RM4.8m in 1QFY20 (vs. core net profits of RM0.4m in 4Q19 and RM14.1m in 1Q19) came in below expectations (as consensus and HLIB projected core net profits of RM28.6m and RM23.1m respectively), due mainly to higher-than-expected CPO production cost. We lower our FY20-21 core net profit forecasts by 14.8%, 9.3% and 9.6% respectively, mainly to account for higher CPO production cost assumptions. We maintain our SELL rating on the stock, with an unchanged TP of RM1.21 based on 0.8x P/B of RM1.51 (at lower end of 10-year historical P/B trend).

Below expectations. Core net loss of RM4.8m in 1QFY20 (vs. core net profits of RM0.4m in 4Q19 and RM14.1m in 1Q19) came in below expectations (as consensus and HLIB projected core net profits of RM28.6m and RM23.1m respectively). Higher than-expected CPO production cost was the key variance against our forecast.

QoQ. 1QFY20 reversed to a core net loss of RM4.9m (from a core net profit of RM0.4m in previous quarter), mainly on the back of lower sales volume (for both CPO and PK) and realised average CPO price (in Malaysia), and higher finance cost.

YoY. 1QFY20 reversed to a core net loss of RM4.9m (from a core net profit of RM14.1m in 1QFY19), due mainly to lower CPO sales volume, sharply lower palm product prices and higher labour cost in Malaysian operations (arising from minimum wage hike since Jan-19).

FFB production. FFB production increased by 4.8% to 231.7k tonnes in 1QFY20 (helped mainly by crop production recovery in Malaysian operations, which more than mitigated lower FFB production in Indonesian operations). For the full-year, we are projecting FFB production growth of 2.7%, underpinned by crop recovery in Malaysia and young age profile in Indonesia).

Forecasts. We lower our FY20-21 core net profit forecasts by 14.8%, 9.3% and 9.6% respectively, mainly to account for higher CPO production cost assumptions.

Maintain SELL, with unchanged TP of RM1.21. We maintain our SELL rating on the stock, with an unchanged TP of RM1.21 based on 0.8x P/B of RM1.51 (at lower end of 10-year historical P/B trend). At RM1.43, IJMP is trading at FY20-22 P/E of 64.1x, 36.7x and 37.4x respectively.

Source: Hong Leong Investment Bank Research - 29 Aug 2019