Period  1Q14

Actual vs. Expectations  IJM Plantation (“IJMP”) 1Q14 core net profit* of RM9.4m is way below expectations as it made up only 7% of consensus (RM133m) and 6% of our expectation (RM145m). We believe this could be caused by lower than expected CPO prices and higher than expected start-up cost incurred in Kalimantan.

Dividends  No dividend was announced as expected.

Key Results Highlights  YoY, 1Q14 core net profit tumbled 66% to RM9.4m due to lower CPO prices (-30% to RM2234/mt) and higher operating cost. We gather that the high start-up cost is caused by expenses to support young maturing trees and the new palm oil mill which is still operating below an optimal level.

 QoQ, 1Q14 core net profit declined 60% to RM9.4m due to a seasonal 17% drop in FFB volume to 148,071 mt and higher start-up cost incurred.

Outlook  Current low CPO prices should pressure FY14E earnings to stay flat at RM130m.

Change to Forecasts  We have reduced our FY14E and FY15E core NP by 9% and 4% to RM130m and RM176m after assuming lower CY14E CPO prices of RM2400/mt (from RM2500/mt) and higher cost.

Rating   Downgrade to MARKET PERFORM

 Our previous assumption that IJMP’s high FFB growth will counter the CPO prices decline has not materialized. We have underestimated the cost to support its young estates and the lower than expected CPO prices. However, its longterm outlook is still positive as the start-up cost issue should be resolved from FY2015 onwards as its Kalimantan estates produce more FFB.

Valuation  We have reduced our TP to RM3.00 (from RM3.50) based on 14.6x PE on CY14E EPS of 20.6 sen. Our Fwd. PER has been reduced to 14.6x (from 16.2x) as we now ascribed -0.5SD below 5-year average Fwd PER (previously average) due to more challenging outlook for its start-up estates in Kalimantan. Our CY14E EPS has also been reduced to 20.6 sen (from 21.6 sen).

Risks  Lower than expected CPO prices.

 Higher than expected start-up cost.

Source: Kenanga