IJM Plantations (IJMP) posted a core net loss of RM8.7m in 1QFY20 vs. a core net profit of RM10.4m in 1QFY19, which was below expectations. The variance was mainly due to weaker-than-expected CPO average selling prices. As such, we cut our FY20-22E core EPS by 5-53%, mainly to take into account lower CPO production and price assumptions. We believe CPO prices will likely recover in 2H19 on the back of declining global palm oil stocks, healthy demand from main buyers such as India and China, higher demand from the biodiesel industry and a slower global CPO production growth rate. Given the earnings forecast revisions, our DCF-derived 12-month TP has been lowered to RM1.68. We maintain our BUY rating on IJMP.

Lower Revenue in 1QFY20 Due to Weak CPO Prices

IJMP reported 1QFY20 revenue of RM133.1m, down by 27.3% yoy mainly because of lower CPO and PKO ASPs. Revenue from Malaysia and Indonesia declined by 35% and 18% yoy, to RM65.4m and RM67.7m, respectively. For IJMP, 1QFY20 CPO ASPs for Malaysia and Indonesia stood at RM1,921/MT (1QFY19: RM2,395/MT) and RM1,821/MT (1QFY19: RM2,115/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM2,220/MT (1QFY19: RM3,538/MT) and RM2,343/MT (1QFY19: RM3,519/MT), respectively. The EBITDA margin contracted to 17.7%, down 2.6 ppt yoy, partly attributable to lower CPO and PKO ASPs as well as higher operating costs.

Results Were Below Our Expectations

IJMP reported a LBT (includes forex gain) of RM5.4m in 1QFY20 vs. a LBT of RM26.3m (includes forex loss) in 1QFY19. After excluding one-off items, IJMP registered a core net loss of RM8.7m in 1QFY20 vs. a core net profit of RM10.4m in 1QFY19, which was below our expectation, partly due to weaker-than-expected CPO prices.

Source: Affin Hwang Research - 29 Aug 2019