• IJMP posted a core net profit of RM27.6m in 6MFY21 compared to a RM9.1m core net loss in 6MFY20. This was above our forecast, mainly attributable to higher CPO selling prices achieved
• As such, we raised our FY21E/22E core earnings forecasts by 78.8%/15.9% to take into account higher CPO ASP assumptions of RM2,650/MT for FY21E and RM2,575/MT for FY22E
• Maintain BUY Rating on IJMP With a Higher DCF-derived TP of RM2.43

6MFY21 Core Net Profit of RM27.6m – Above Our Expectations

IJM Plantations’ (IJMP) 6MFY21 revenue increased by 36.4% yoy to RM417.4m, mainly due to higher sales volumes of CPO as well as higher selling prices. The total CPO sales volume in 6MFY21 increased by 21.9% yoy to 153.2k MT, attributable to higher production for the quarter. IJMP’s CPO ASPs for Malaysia and Indonesia stood at RM2,516/MT (6MFY20: RM1,953/MT) and RM2,177/MT (6MFY20: RM1,821/MT), respectively, while PKO ASPs for Malaysia and Indonesia were at RM2,888/MT (6MFY20: RM2,231/MT) and RM2,374/MT (6MFY20: 2,343/MT), respectively. IJMP posted a PBT (inclusive of forex gains and fair value loss on CPO swaps) of RM112.9m in 6MFY21 vs. a LBT of RM10.3m in 6MFY20. Excluding one-off items, IJMP posted a 6MFY21 core net profit of RM27.6m compared to a core net loss of RM9.1m in 6MFY20. This was above expectation mainly attributable to higher CPO selling prices achieved.

Stronger Core Net Profit Qoq

Sequentially, IJMP’s 2QFY21 revenue increased by 2.6% qoq to RM211.4m, attributable to higher CPO and PKO selling prices but partially offset by lower FFB production at the Indonesian operations due to weather. IJMP’s CPO sales volume was lower in 2QFY21 due to a lower FFB production (-9.4% qoq) but this was offset by a stronger CPO selling price of RM2,515/MT (+14.7% qoq). The higher selling price in 2QFY21 was partly attributable to improved demand, tight stock levels, price increases of other edible oils and weather uncertainties. For 2QFY21, IJMP reported a LBT of RM2.4m compared to a PBT of RM115.3m in 1QFY21 (due to forex losses in 2QFY21 vs forex gains in 1QFY21, as a result of the weakening Rupiah against the US$ and JPY). After adjusting for oneoff items, IJMP posted a core net profit of RM40.2m in 2QFY21 vs. a core net loss of RM12.6m in 1QFY21.

Maintain BUY on IJMP With a New TP of RM2.43

Given the good set of 2Q results, we raise our FY21E/FY22E core EPS by 78.8%/15.9%, mainly to take into account higher CPO ASP assumptions of RM2,650/MT for FY21E and RM2,575/MT for FY22E (from RM2,350-2,450/MT previously. After the earnings forecast revisions, our DCF-derived TP is raised to RM2.43 from RM2.37 previously. We maintain our BUY rating on IJMP.

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 - 26 Nov 2020