Period  2Q14/1H14

Actual vs. Expectations IJM Plantation (IJMP)’s 1H14 core net profit (NP) of RM41m is below expectation as it only made up 41% of consensus (RM101m) and 32% of our estimate for FY14E. We gather that IJMP has sold significant amount of old CPO inventory in 2Q14 which resulted in the lower margin.

 Note that we have excluded forex loss of RM36m in our core NP estimate for 1H14.

Dividends  As expected, no dividend was announced.

Key Results Highlights YoY, 1H14 core NP tumbled 40% to RM41m as CPO prices declined 25% to RM2253/mt. Additionally, the sale of old CPO inventory may have suppressed margin further.

 QoQ, 2Q14 core NP improved 243% to RM32m due to seasonally higher FFB production of 179,583 mt (21%), better palm kernel oil prices (+13% to RM2471/mt) and better CPO prices (+2% to RM2270/mt).

Outlook  2H14 outlook should be better as the issue of old CPO inventory has been fully resolved. We gather that IJMP has cleared all its old CPO stocks as of end-Sep 2013.

Change to Forecasts FY14E core NP is slashed by 33% to RM87m after assuming higher discount to its old CPO inventory. However, we maintain our FY15E core NP of RM175m as we believe that the issue of old CPO inventory is unlikely to recur in the future.

Rating Maintain MARKET PERFORM

 Despite the weak 1H14 result, we believe the issue of old CPO inventory is now history. Operationally, IJMP’s FFB growth of 15% YoY is still in line with our estimate and its long-term earnings growth remain intact supported by its maturing Kalimantan estate. Having said that, we prefer to see more certainty in the next quarter’s result before assigning a new recommendation.

Valuation  We have rolled forward our valuation to FY15E (from CY14E previously). Hence, our new TP is raised to RM3.25 based on unchanged Fwd. PER of 14.9x on FY15E EPS of 21.8 sen.

Risks to Our Call  Lower than expected CPO prices.

 Higher than expected planting cost.

Source: Kenanga