Result.

• IJM Plantation posted a headline net profit and revenue of RM 23.7m and RM220.3m respectively for 3QFY17. After stripping out gains in foreign exchange and financial derivatives instrument, we derived core net profit of RM40.4m, which inched up 3.2% qoq and back to profit as compared to a loss of RM3.3m in preceding quarter. The tepid performance was mainly attributed by higher selling prices coupled with slight growth of FFB production.

• Within expectations. The 9MFY17 core net profit of RM94.9 matched 78% for both ours and consensus full year net earnings forecast.

Comment

• Tepid core net profit in 3QFY17 was bogged down by lower sales volume in Malaysia operation coupled with thinner margin in Indonesia operation. Malaysia operation 3QFY17 PBT plunged 45.8% qoq as a result of scant revenue of RM133m (-15% qoq) in view of 22% drop in FFB production despite higher selling price in CPO (9.4% qoq) and PKO (+8.7%). On the other note, Indonesia operation revenue surged 95.8% yoy, thanks to strong FFB production growth of 52.7% yoy. However, production cost put a downward pressure in profitability and resulted in losses in PBT of RM1.95m. We understand that the low profitability was due to fixed plantation maintenance and overhead costs incurred in young mature areas. Meanwhile, on a yearly basis, core net profit has back to profit as compared to a loss of RM3.3m in 3QFY16 and it was mainly driven by higher revenue (+41.5% yoy), elevated by higher CPO (+24% yoy) and PKO prices (+154% yoy).

• Cumulatively, 9MFY17’s core net profit bloated 51.1% yoy, back by higher selling price despite lower FFB production of 4.6% yoy. Malaysia operation 9MFY17’s PBT surged 72.3% yoy, underpinned by higher CPO (+26.4% yoy) and PKO (+75.6% yoy) selling prices which outweighed a slide in FFB production (-9.2%yoy). Meanwhile, Indonesia operation 9MFY17’s PBT stood at RM22.9m, against losses of RM15.86m in the preceding 9 months thanks to higher FFB production (+2.3% yoy) coupled with higher CPO (+34.6% yoy) and PKO (+106% yoy) selling prices.

• Looking forward, growth in Indonesia operation would bog down by fixed plantation maintenance and overhead costs. We believe Indonesia will sustain its growth in FFB production given more young trees advance into mature bracket. On the other hands, we 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 - 24 Feb 2017