IJM Plantations’ (IJMP) 1QFY19 core net profit of RM10.4m (-10.2% yoy) came in within our expectation. Thus, we make no changes to our FY19-21E core EPS forecasts post the 1QFY19 results, and we maintain our TP at RM1.88, based on an unchanged 22x PER to our CY2019E core EPS. Maintain SELL rating on the stock.

Flattish Revenue as Weak Prices Offset by Higher Sales Volume

IJM Plantations (IJMP) reported a slightly lower 1QFY19 revenue by 0.8% yoy to RM183.1m, mainly because of lower CPO and PKO ASPs but partially offset by higher CPO sales volumes. Revenue from Malaysia declined by 1.1% yoy to RM100.6m, while revenue from Indonesian operations increased by 0.4% yoy to RM82.5m. The 1QFY19 CPO ASPs for Malaysia and Indonesia were at RM2,395/MT (1QFY18: RM2,753/MT) and RM2,115/MT (1QFY18: RM2,502/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM3,538/MT (1QFY18: RM4,399/MT) and RM3,519/MT (1QFY18: 4,136/MT), respectively. The EBITDA margin contracted to 20.4%, down 7.5ppt, partly attributable to lower CPO and PKO ASPs as well as higher operating costs. IJMP reported a LBT of RM26.3m in 1QFY19 due to forex losses vs. a PBT of RM16.3m in 1QFY18.

1QFY19 Core Net Profit Declined by 10.2% Yoy to RM10.4m

After excluding one-off items, IJMP’s core net profit in 1QFY19 declined by 10.2% yoy to RM10.4m. This came in within our, but below consensus, expectations, accounting for 18% and 9% of our FY19 and street forecasts, respectively. We expect stronger quarters ahead for IJMP underpinned by higher CPO production.

Maintain SELL Rating With TP of RM1.88

We leave our FY19-21E core EPS forecasts unchanged post the 1QFY19 results. Hence, no changes made to our SELL rating for IJMP and TP of RM1.88, based on an unchanged 22x PER on our CY2019E core EPS.

Key Risks

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

Source: Affin Hwang Research - 29 Aug 2018