Period     4Q13/FY13

Actual vs. Expectations   IJM Plantation’s (“IJMP”) FY13 core net profit* of RM129m was 6% above the consensus expectation of RM122m. It was also 15% above our estimate of RM112m.

The benefit from the company’s cost savings effort has been greater than expected as it managed to reduce the operating expenses by 11% YoY to RM110m in FY13. This could be due to the good timing of its fertiliser purchases and the effort to increase its FFB harvesting efficiency amidst the current low CPO prices.

More importantly, the 4Q13 core net profit jumped 16% YoY, which was the first YoY increase after four consecutive quarters of decline. This should be due to the company’s effort to save cost and its superior FFB growth of 43%. These factors were enough to counter the decline of 27% in the CPO prices.

Dividends    As expected, a single tier interim dividend of 7.0 sen was announced.

Key Results Highlights  YoY, the FY13 core net profit declined 26% to RM129m as CPO prices were down by 14% to around RM2620/mt. This was slightly mitigated by the FFB growth of 3% to 692k mt.

QoQ, the 4Q13 core net profit declined 35% to RM23m as the FFB volume slipped 22% seasonally to 178k mt. CPO prices were flat at RM2286/mt.

Outlook    1Q14 outlook is positive as its FFB production has grown 49% YoY to 50,749 mt in April 2013. IJMP high FFB growth should outpace the ~25% decline in the CPO prices and allow IJMP to register a YoY earnings growth.

Change to Forecasts     Maintaining our FY14E-FY15E core earnings of RM145-RM174m. Despite the higher than expected cost savings in FY13, we think that room for extra cost savings in the future should be limited in view of minimum wage implementation.

Rating  Upgraded to OUTPERFORM

The share price has declined to an attractive level of RM3.00. We are expecting total return** of 15.3% from here.

Valuation     Maintaining our TP of RM3.38 based on an unchanged Fwd. PER of 16.2x on its CY14E EPS of 20.8 sen.

Risks    Lower than expected CPO prices.

Source: Kenanga