• IJMP posted a core net loss of RM12.6m in 1QFY21, widening from a RM8.7m core net loss in 1QFY20. This was below ours and consensus forecasts and the variance was mainly attributable to losses from its Indonesian operation.
• As such, we cut our FY21 core earnings forecast by 15% to take into account lower profits from Indonesia, while maintaining our FY22-23E earnings forecasts.
• Maintain BUY rating on IJMP with DCF-derived TP unchanged at RM2.36.

Core Net Loss Widened Yoy to RM12.6m – Below Expectations

IJM Plantations (IJMP) 1QFY21 revenue increased by 54.8% yoy to RM206m, mainly due to higher sales volume of CPO as well as higher selling prices. The total sales volume of CPO in 1QFY21 increased by 53.8% yoy to 81k MT, attributable to higher production for the quarter. Meanwhile, IJMP’s CPO ASPs for Malaysia and Indonesia stood at RM2,318/MT (1QFY20: RM1,921/MT) and RM2,066/MT (1QFY20: RM1,821/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM2,812/MT (1QFY20: RM2,220/MT) and RM2,234/MT (1QFY20: 2,343/MT), respectively. IJMP posted a PBT (which is inclusive of forex gains and fair-value gains on CPO swaps) of RM115.3m in 1QFY21 vs. a LBT of RM5.4m in 1QFY20. After excluding one-off items, IJMP’s core net loss in 1QFY21 was at RM12.6m, widening from RM8.7m in 1QFY20. This was below expectation mainly attributable to losses at its Indonesian operation given the weaker-than-expected selling prices.

1QFY21 PBT Boosted by Forex Gains

Sequentially, IJMP’s 1QFY21 revenue increased by 5.4% qoq to RM206m and reported a PBT of RM115.3m vs. a LBT of RM73.4m in 4QFY20. For the quarter, IJMP benefitted from forex gains of RM91.7m due to the strengthening of Rupiah against the US$ and JPY. IJMP’s CPO sales volume was higher in 1QFY21 due to higher FFB production but this was partially offset by weaker selling prices of CPO. After adjusting for one-off items, IJMP’s posted a core net loss of RM12.6m in 1QFY21 vs. a core net profit of RM22.4m in 4QFY20.

Maintain BUY Rating on IJMP With TP of RM2.36

Given the weak 1Q results, we cut our FY21 core EPS by 15% to account for lower contribution from the Indonesian operation, while maintaining our FY22-23E forecasts. We expect earnings to improve in the remaining quarters as we believe FFB and CPO production will continue to pick up as we enter the peak production period towards Oct/Nov and this should help to bring down the unit production costs. We maintain our BUY rating on IJMP and DCF-derived 12-month TP of RM2.36.

Key Risks

Key downside risks include: 1) a weaker economic growth leading to lower consumption of vegetable oils; 2) a drop in CPO prices; 3) lower-than-expected FFB and CPO production; and 4) changes in government policies.

Source: Affin Hwang Research - 27 Aug 2020