Below Expectations

IJMP’s FY17 core net profit of RM108.3m came in below expectations. We are cutting our FY18-19 EPS forecasts by 17-24% to account for the weak FY17 results. As such, we lower our target price for IJMP to RM3.73. Maintain BUY rating on the stock.

FY17 Core Earnings More Than Double to RM108.3m

IJM Plant’s (IJMP) FY17 revenue increased 35.2% yoy to RM753.7m, while PBT more than tripled yoy to RM168.5m. The higher profit was partly attributable to higher CPO and PKO prices but partially offset by lower CPO production. The EBITDA margin also improved to 31.5% from 22.4% in FY16. After excluding forex gains and other one-off items, IJMP’s FY17 core net profit more than doubled yoy to RM108.3m. However, this came in below our and consensus expectations, accounting for 85% and 88% of our and street forecasts, respectively. The variance was mainly due to lower-than-expected CPO production and a higher effective tax rate. IJMP has declared an interim DPS of 7 sen (FY16: 5 sen).

Weaker 4QFY17 Core Net Profit by 65.3% Qoq to RM14.7m

On a sequential basis, IJMP’s 4QFY17 revenue declined by 12.6% qoq to RM192.6m. This was mainly due to lower FFB production but was partially mitigated by higher CPO and PKO selling prices. The group’s own FFB production dropped by 18% qoq to 197,515 MT, while CPO ASPs for Malaysia and Indonesia were RM3,075/MT (3QFY17: RM2,840/MT) and RM2,788/MT (3QFY17: RM2,667/MT), respectively. The PKO ASPs for Malaysia and Indonesia were RM6,616/MT (3QFY17: RM6,134/MT) and RM7,009/MT (3QFY17: 5,677), respectively. IJMP’s core net profit also declined by 65.3% qoq to RM14.7m.

Maintain BUY Rating With a New TP of RM3.73

We are cutting our FY18-19 EPS forecasts by 17-24% to account for the weak FY17 results, especially the FFB yield and OER rate. Our CPO ASP assumption is maintained at RM2,600/MT. We are also introducing our FY19 forecasts. In tandem with our earnings reductions, we lower our 12- month target price for IJMP to RM3.73 (from RM4.19 previously), based on an unchanged 22x PER and as we roll forward our valuation basis to FY18. We maintain our BUY rating on the stock as we believe rising plantation estates coming into maturity will drive FFB and CPO production growth.

Source: Affin Hwang Research - 26 May 2017