Result

• IJM Plantation posted a headline net profit and revenue of RM12.6m and RM141.3m respectively for 4QFY18. After stripping out loss in foreign exchange, gain in financial derivatives instrument and foreign exchange losses on foreign borrowings, we derived a core net profit of RM23.2m, which was up 36.3% qoq and 53.5% yoy. The favourable yoy performance was underpinned by recovery in FFB production in MO despite lower average selling prices (ASP) in CPO and Palm Kernel.

• Above expectations. The 12MFY18 core net profit of RM77.8m meets 112.6% and 114.6% of ours and consensus full year net earnings forecast respectively.

Comment

• Lower FFB productions in both Malaysia Operation (MO) and Indonesia Operation (IO) bogged down qoq performance. Revenue and PBT in 4QFY18 decelerated 37.2% qoq and 94.2% qoq respectively. The slumbering performance was due to lower FFB production (MO: -4.5% qoq and IO: -8.4% qoq) and lower CPO ASP (MO:-5.3% qoq; IO: -11.6% qoq).

• Yoy operational performance dented by lower revenue, further compounded by higher operating cost in IO. Revenue and PBT tumbled 26.6% yoy and 94.9% yoy respectively in 4QFY18. The lower revenue was bogged down by lacklustre performance in IO which outweighed the better performance in MO. Lacklustre performance in IO was due to tepid FFB production in IO (-12.6% yoy) coupled with lower CPO ASP (-23.7% yoy). However, better performance in MO was due to higher FFB production (+50.5% yoy) which outweighed a slide in CPO price (-19.7% yoy). Meanwhile, lower PBT was further aggravated by higher operating cost in IO with PBT margin dropped 18.1 ppts to 1.3%.

• 12MFY18 revenue was flat (-0.9% yoy) but PBT slumped 54.1% yoy. Soothing revenue was mainly due to lower FFB production in MO as well as CPO and PKO prices in both MO and IO. However, PBT margin was whittled by higher replanting and wage costs in MO.

• Dividend declared. The Group has declared an interim dividend of 5 sen per share for FY18.

• Looking forward, the group’s performance is underpinned by growth in IO. The Group expects FFB production to achieve 1,000,000/mt (+7.2%) in FY19F, mainly boosted by IO. However, we believe overall growth would be offset by fixed plantation maintenance and overhead costs in IO coupled with higher replanting and wage costs in Malaysia. We believe Indonesia will sustain its growth in FFB production given more young trees advance into mature bracket. On the other hands, we expect production cost to remain high as its young age tree profiles require higher fixed plantation maintenance, coupled with higher overhead costs in relation to start-up crop yield. In a nutshell, overall performance of the group shall be tepid amid rising FFB production.

Earnings Outlook/Revision

• We lift our earnings forecasts for FY19F by 5.1% in view of better margin and higher FFB production. Besides, we introduce our earnings forecast for FY20 with 13.3% yoy growth.

Valuation & Recommendation

• Maintained HOLD with an unchanged target price of RM2.50. Our valuation is now pegged at 19.7x FY20F PE given its relatively young average tree age of 9.2 years (Malaysia area 14.2 years and Indonesia 4.9 years). Our neutral stance on the stock is due to its steep valuation and the lingering cost issue.

Source: JF Apex Securities Research - 31 May 2018