IJMP’s 1QFY18 core net profit of RM17m came in below expectations. The variance was mainly due to higher operation costs on the Indonesian side. As such, we cut our FY18-20 EPS forecasts by 17- 19% to account for the weak 1QFY18 results. Given the limited upside to our new TP of RM3.05, we downgrade the stock to a HOLD.

1QFY18 Revenue Increased by 32.4% Yoy

IJM Plantations (IJMP) reported higher 1QFY18 revenue by 32.4% yoy to RM184.6m, mainly because of higher FFB production as well as higher CPO prices but partially offset by the decline in PKO prices. Own FFB production increased by 26.1% yoy to 241,544MT in 1QFY18, while CPO ASPs for Malaysia and Indonesia were at RM2,753/MT (1QFY17: RM2,570/MT) and RM2,502/MT (1QFY17: RM2,411/MT), respectively. Meanwhile, the PKO ASPs for Malaysia and Indonesia were at RM4,399/MT (1QFY17: RM4,954/MT) and RM4,136/MT (1QFY17: 4,379/MT), respectively. EBITDA margin contracted to 26.7% from 31.3% in 1QFY17, partly attributable to higher operation costs.

Core Net Profit Increased by 27% Yoy to RM17m – Below Expectations

After excluding one-off items, IJMP’s core net profit in 1QFY18 improved by 27% yoy to RM17m. This came in below our and consensus expectations, accounting for 11% and 12% of our previous and street forecasts, respectively. The variance was mainly due to higher-thanexpected cost of production especially for the Indonesian operations.

TP Lowered to RM3.05, Downgraded to HOLD

We have cut our FY18-20 EPS forecasts by 17-19% to account for the weak set of results, especially the higher cost of production for the Indonesian operations. Our CPO ASP assumption is maintained at RM2,600/MT. In tandem with our earnings downgrade, our target price for IJMP is now lowered to RM3.05 (from RM3.73 previously), based on an unchanged 22x FY18E PER. We downgrade IJMP to a HOLD rating (from BUY previously) given the limited upside to our new TP.

Key Risks

Key upside/downside risks include: 1) a stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in government policies.

Source: Affin Hwang Research - 24 Aug 2017