IJM Plant’s 9MFY19 core net loss of RM21.9m came in below our and consensus expectations. The decline in earnings was mainly due to lower CPO and PKO ASPs and sales volumes as well as higher operating costs. Given the weak 9MFY19 results, we now project a FY19E core net loss of RM30.5m versus a core net profit of RM9.3m previously and we cut our FY20-21 core EPS forecasts by 6-7%. Our TP is lowered to RM1.36 (from RM1.44 previously). Maintain SELL.

9MFY19 Results Disappointing

IJM Plantations (IJMP) reported 9MFY19 revenue of RM466.1m, down 23.1% yoy mainly because of lower CPO and PKO ASPs and sales volumes. Revenue from Malaysia and Indonesia declined by 29.3% and 15.1% yoy, to RM239.5m and RM226.6m, respectively. 9MFY19 CPO ASPs for Malaysia and Indonesia stood at RM2,204/MT (9MFY18: RM2,675/MT) and RM1,881/MT (9MFY18: RM2,448/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM3,240/MT (9MFY18: RM4,919/MT) and RM3,169/MT (9MFY18: 4,694/MT), respectively. The EBITDA margin contracted to 15.1%, down 13.5ppt yoy, partly attributable to lower CPO and PKO ASPs as well as higher operating costs. IJMP reported a LBT of RM60m in 9MFY19 vs. a PBT of RM54.6m in 9MFY18. After excluding one-off items, IJMP registered a core net loss of RM21.9m in 9MFY19 vs. a core net profit of RM36.8m, which was below our and consensus expectations. The variance to our forecast was mainly due to the weaker-than-expected EBITDA margin.

Losses Widened in 3QFY19

IJMP’s 3QFY19 revenue increased slightly by 2% qoq to RM142.9m and it reported a LBT of RM2m, narrowing from a LBT of RM31.7m in 2QFY19. The narrower loss was partly attributable to forex gains and fair value gains on CPO pricing swaps. After excluding one-off items, IJMP reported a wider core net loss of RM25.7m vs. a core net loss of RM6.6m in 2QFY19 due to higher losses from the Indonesian operation.

Source: Affin Hwang Research - 27 Feb 2019