No major surprises, within expectations

IJMP’s revenue was better in 1HFY17 by 19% yoy to RM341m, underpinned by higher CPO and PKO prices but partially offset by lower FFB production. However, after excluding forex gains and other one-off items, IJMP recorded core net profit of RM51.3m (-33% yoy), which was within expectations. No changes to our earnings forecasts. Maintain HOLD rating and TP of RM3.53.

1HFY17 results within expectations

IJMP’s 1HFY17 revenue and net profit increased by 18.8% and >100% yoy, respectively, to RM340.8m and RM69.4m. The increase in revenue was mainly due to higher CPO and PKO prices but was partially offset by lower FFB production. However, after excluding forex gains and other oneoff items, 1HFY17 core net profit declined by 32.9% yoy to RM51.3m. This was within expectations, accounting for 42% and 43% of our and consensus FY17 forecasts, respectively.

2QFY17 core net profit declined 70.3% yoy to RM40.3m

Sequentially, IJMP’s 2QFY17 core net profit more than doubled qoq to RM37.9m, on higher revenue by 44.5% qoq to RM201.4m. This was mainly due to higher FFB production as well as selling prices of CPO and PKO. Group’s own FFB production increased by 21.3% qoq while the CPO ASPs for Malaysia and Indonesia were RM2,597/MT (1QFY17: RM2,570/MT) and RM2,412/MT (1QFY17: RM2,411/MT), respectively.

Maintain HOLD rating and TP of RM3.53

We leave our FY17-19 core EPS forecasts unchanged with no major surprises in IJMP’s 1HFY17 results. We maintain our HOLD rating on the stock and 12-month target price of RM3.53, based on an unchanged PER target of 19x applied to our CY17E EPS. Key downside risks include: (i) renewed weakness in the global economy and higher-than-expected soybean and palm oil production; (ii) an unforeseen spike in production costs; and (iii) unfavourable/unfair policies (including changes in biofuel mandates). Key upside risks include: (i) a stronger economic recovery; (ii) an El Nino-induced production decline significantly boosting CPO prices; and (ii) a rebound in crude oil demand and prices.

Source: Affin Hwang Research - 29 Nov 2016