IJMP’s 1QFY21 core net profit of RM7.7m (QoQ: -42.9%; YoY: >100%) accounted for 12.3-12.7% of consensus and our full-year estimates. We consider the results within expectations, as we anticipate earnings to come in stronger in subsequent quarters, underpinned by seasonally stronger FFB output (particularly, in 2Q and 3Q). We maintain our core net profit forecasts and TP of RM1.78 (based on unchanged 20x FY22 core EPS of 8.9 sen). Downgrade rating to HOLD (from Buy earlier) as valuations have turn stretched following recent share price outperformance

Within expectations. 1QFY21 core net profit of RM7.7m (QoQ: -42.9%; YoY: >100%) accounted for 12.3-12.7% of consensus and our full-year estimates. We consider the results within expectations, as we anticipate earnings to come in stronger in subsequent quarters, underpinned by seasonally stronger FFB output (particularly, in 2Q and 3Q).

Exceptional items (EIs). We adjusted for RM74.5m worth of EIs, which include (i) RM71.5m unrealised forex translation gain (adjusted for tax), (ii) RM2.7m fair value gain on CPO swap, and (iii) RM0.2m fair value gain on interest rate swap.

QoQ. Core net profit fell 42.9% to RM7.7m in 1QFY21, as higher CPO sales volume was more than offset by lower palm product prices and higher finance costs.

YoY. 1QFY21 performance returned to the black, with a core net profit of RM7.7m (from a core net loss of RM1.2m SPLY), due mainly to higher FFB output, CPO sales and palm product prices.

FFB production. FFB production increased by 18.8% YoY to 275k mt in 1QFY21, thanks to crop recovery in Malaysian operations and more planted areas moved to prime age bracket in Indonesian operations. Despite having clocked in a respectable YoY FFB output growth of 18.8% in 1QFY21, management is still maintaining its FFB output growth of 5% in FY21, as it expects productivity to slow in 2HFY21 (due to dry weather condition). Output growth in FY21 will be driven by additional newly mature area (~300 ha) and higher yield in Indonesia, which will more than mitigate (i) lower harvesting areas in Sabah (due to replanting activities) and slight decline in FFB output contribution from Lampung area (arising from dry weather condition).

Forecast. Maintain, as we consider the results within our expectation. In our core net profit forecasts, we are projecting average CPO prices of RM2,350/mt in FY21, RM2,400/mt in FY22-23.

Maintain TP of 1.78, downgrade to HOLD. We maintain our TP of RM1.78 based on unchanged 20x FY22 core EPS of 8.9 sen. While we continue to like IJMP for its improving earnings prospects, young age profile (average age of 14 years for Malaysian estates and 8 years for Indonesian estates) and prudent management, we downgrade our rating on IJMP to HOLD (from Buy earlier), as valuations have turn stretched following recent share price outperformance.

Source: Hong Leong Investment Bank Research - 27 Aug 2020