IJM Plant’s FY19 core net loss of RM18.1m (vs. core net profit of RM50.6 in FY18) came in above our expectation, partly attributable to lower-than-expected losses from its Indonesian operations. The decline in FY19 earnings was mainly due to lower CPO and PKO ASPs as well as higher operating costs. Despite the better-than-expected FY19 results, we have cut our FY20-21E core EPS by 9.5-33.5%, mainly to take into account lower CPO price assumptions. Trading at 22.3x FY21E PER, we upgrade IJMP to BUY (from SELL previously) with a higher DCF-based TP of RM1.80 (previously RM1.36). We have changed our valuation method to DCF as we think it better captures expectations of CPO prices and production, and the resulting cash flows.

Turning Black in 4QFY19

Sequentially, IJMP’s 4QFY19 revenue increased by 15.4% qoq to RM164.8m and it reported a PBT of RM16.7m (3QFY19 LBT: RM2m). The higher qoq profit was partly due to higher CPO sales volumes and prices. After excluding one-off items, IJMP reported a core net profit of RM3.8m vs. a core net loss of RM25.7m in 3QFY19 as its Indonesian operations turned profitable.

FY19 Results Better-than-expected

IJM Plantations (IJMP) reported FY19 revenue of RM630.9m, down by 15.6% yoy mainly because of lower CPO and PKO ASPs. Revenue from Malaysia and Indonesia declined by 22.4% and 6.9% yoy, to RM324.8m and RM306.1m, respectively. For IJMP, FY19 CPO ASPs for Malaysia and Indonesia stood at RM2,125/MT (FY18: RM2,639/MT) and RM1,846/MT (FY18: RM2,380/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM3,168/MT (FY18: RM4,812/MT) and RM2,712/MT (FY18: 4,575/MT), respectively. EBITDA margin contracted to 15.2%, down 12.6ppt yoy, partly attributable to lower CPO and PKO ASPs as well as higher operating costs. IJMP reported a LBT of RM43.3m in FY19 vs. a PBT of RM50.8m in FY18. After excluding one-off items, IJMP registered a core net loss of RM18.1m in FY19 vs. a core net profit of RM50.6m in FY18, which was above our expectation, partly due to lower-than-expected losses from its Indonesian operations.

Source: Affin Hwang Research - 30 May 2019