IJMP’s 9MFY18 core net profit of RM48.7m (-48% yoy) came in below expectations. The variance was mainly due to the lower-than expected margin and higher-than-expected tax charges. As such, we are cutting our FY18-20 core EPS forecasts by 13-37% to account for the weak results and lowering our 12-month TP to RM2.20 from RM2.83. We maintain our HOLD rating on the stock.

9MFY18 PBT Declines on Higher Costs of Production

IJM Plantations (IJMP) reported 9MFY18 revenue of RM605.9m, higher by 8% yoy mainly because of higher CPO and PKO sales volumes in the Indonesian operation, but this was partially offset by the decline in CPO and PKO prices. Own FFB production increased by 6.3% yoy to 707,076MT in 9MFY18, while CPO ASPs for Malaysia and Indonesia were at RM2,675/MT (9MFY17: RM2,674/MT) and RM2,448/MT (9MFY17: RM2,504/MT), respectively. Meanwhile, the PKO ASPs for Malaysia and Indonesia were at RM4,919/MT (9MFY17: RM5,631/MT) and RM4,694/MT (9MFY17: 5,132/MT), respectively. However, the EBITDA margin contracted to 26.2% from 32% in 9MFY17, partly due to higher operation costs. IJMP’s PBT declined by 42.7% yoy in 9MFY18 to RM75.4m.

Results Below Expectations

Excluding one-off items, IJMP’s core net profit in 9MFY18 declined by 48% yoy to RM48.7m. This came in below our and consensus expectations, accounting for 48% and 52% of our previous 2018 and consensus forecasts, respectively. The variance was mainly due to a lower-thanexpected margin given the higher costs of production and higher-thanexpected tax rate.

Lowered TP to RM2.20, Maintain HOLD Rating

We have cut our FY18-20 core EPS forecasts by 13-37% to account for the weak 9MFY18 results, especially the higher operation costs for both Malaysia and Indonesia as well as higher tax charges. In tandem with our earnings forecast revisions, our target price for IJMP is now lowered to RM2.20, based on an unchanged 22x PER on CY18E core EPS.

Key Risks

Key upside/downside risks include: 1) stronger/weaker economic growth leading to 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 Feb 2018