IJMP’s 1HFY18 core net profit of RM37.9m (-26.1% yoy) came in below expectations. The variance was mainly due to higher-than-expected operation costs and depreciation charges. As such, we are cutting our FY18-20 core EPS forecasts by 16-20% to account for the weak 1HFY18 results, and lowering our 12-month TP for IJMP to RM2.83. Maintain HOLD rating on the stock.

1HFY18 PBT Declines on Higher Costs of Production

IJM Plantations (IJMP) reported 1HFY18 revenue of RM381m, up 11.8% yoy, mainly because of higher FFB production as well as higher CPO prices but this was partially offset by the decline in PKO prices. Own FFB production increased by 9.9% yoy to 466,169MT in 1HFY18, while CPO ASPs for Malaysia and Indonesia were at RM2,718/MT (1HFY17: RM2,588/MT) and RM2,470/MT (1HFY17: RM2,411/MT), respectively. Meanwhile, the PKO ASPs for Malaysia and Indonesia were at RM4,543/MT (1HFY17: RM5,374/MT) and RM4,318/MT (1HFY17: 4,452/MT), respectively. The EBITDA margin contracted to 27.4% from 34.9% in 1HFY17, partly attributable to higher operation costs, while PBT declined by 58.1% yoy in 1HFY18 to RM43m.

Results Below Expectations

After excluding one-off items, IJMP’s core net profit in 1HFY18 declined by 26.1% yoy to RM37.9m. This came in below our and consensus expectations, accounting for 31% and 32.6% of our previous and street forecasts, respectively. The variance was mainly due to higher-thanexpected costs of production and depreciation charges.

TP Lowered to RM2.83, Maintain HOLD

We have cut our FY18-20 EPS forecasts by 16-20% to account for the weak 1HFY18 results, especially the higher operation costs for both Malaysia and Indonesia as well as higher depreciation charges. In tandem with our earnings downgrade, our target price for IJMP is now lowered to RM2.83 (from RM3.05 previously), based on an unchanged 22x PER on CY18E core EPS. We maintain our HOLD rating on IJMP.

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 policies.

Source: Affin Hwang Research - 28 Nov 2017