Result.

• IJM Plantation posted a headline net profit and revenue of RM 44.4m and RM201.4m respectively for 2QFY17. After stripping out gains in foreign exchange and financial derivatives instrument, we derived core net profit of RM39.1m, which jumped 155% qoq and 5.7% yoy. The favourable performance was attributed by recovery of FFB production coupled with higher selling prices.

• Broadly within expectations. The 6MFY17 core net profit of RM54.5 made up 45% and 46% of ours and consensus full year net earnings forecast respectively..

Comment

• On quarterly basis, Malaysia operation’s 2QFY17 PBT doubled to RM56.8m and cushion the plunge in Indonesia PBT. Overall 2QFY17’s core net profit rocketed to RM39.1m (+155% qoq). Malaysia performance was lifted by higher sales volume (+113% qoq) on the back of higher FFB production (+42.7% qoq) and higher PKO selling price (+13.9% qoq). Meanwhile, Indonesia operation was bogged down by slight retreat in FFB production (-5.8% qoq) which further dented by higher production cost in view of increase in young mature areas incurring full fixed plantation maintenance and overhead costs.

• On yearly basis, 2QFY17 core net profit inched up 5.7% yoy despite a big leap in selling price given higher base in 2QFY16 with a boost of tax incentive. Both Malaysia and Indonesia performance improved by higher CPO selling price (Malaysia +26.7% yoy; Indonesia +31.5% yoy) despite FFB production growth remained stagnant. However, core net profit only inched up by 5.7% yoy as 2QFY16 was lifted by tax incentive.

• Cumulatively, 6MFY17’s core net profit down 17.6% yoy amid lower FFB production outweighed the improved selling price. Overall, FFB production decreased 8.4% yoy due to the dry spell which overshadowed the improved CPO selling price for both Malaysia operation (+22.0% yoy) and Indonesia operation (+25.4% yoy). As mentioned above, 2QFY16 also lifted by tax incentives that resulted in a higher base for 6MFY16.

• Outlook remains tepid. We believe Indonesian will sustain its strong growth in FFB production given more young trees advance into mature bracket. On the other hands, we also expect rising production cost as its young age tree profiles require higher fixed plantation maintenance coupled with higher overhead costs in relation to start-up crop yield. Hence, performance of the group shall be tepid in view of rising FFB production albeit higher selling price for the next few months.

Earnings Outlook/Revision

• We retain our earnings forecast for FY17 and FY18.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM3.00. We pegged our valuation at PER of 20x FY18F EPS given its relatively young average tree age of 8.1 years. Whilst we are positive with the Group’s prospect over a longer run given its strong growth in Indonesia, we do not foresee any immediate positive kicker to the share price.

Source: JF Apex Securities Research - 29 Nov 2016