Period  1Q15

Actual vs. Expectations IJM Plantation (IJMP)’s 1Q15 core net profit (CNP) of RM43.8m is within expectations as it made up 29% of consensus (RM152.0m) and 27% of our estimate (RM162.0m).

 Note that we have excluded the forex loss of RM17.7m in our CNP calculation.

Dividends  None as expected.

Key Results Highlights YoY, 1Q15 CNP increased 367% to RM43.8m as CPO prices improved 15% to RM2566/MT and FFB volume surged 46% to 216,291 MT.

 QoQ, 1Q154 CNP grew 129% to RM43.8m due to seasonally higher FFB production to 216,291 MT (+13% QoQ) despite flat CPO price at RM2566/MT (-1% QoQ). Our QoQ CNP growth is against the trend of lower growth in the reported earnings as we have excluded the forex loss for CNP as explained previously.

Outlook  Management expects FY15 CNP to be satisfactory due to contribution from their Kalimantan estates. However, IJMP also mentioned that uncertainties in CPO prices will affect the Group’s profitability.

Change to Forecasts Maintain FY15E CNP of RM162m while FY16E CNP is also unchanged at RM163m.

Rating Maintain UNDERPERFORM

 Despite decent 1Q15 result, earnings outlook from 2Q15 onwards should be challenging due to the current low CPO prices. If CPO prices stay below RM2100/MT for an extended period, 2Q15 earnings may be affected significantly.

 Long-term earnings growth may be affected after five years due to a potential limit by Indonesia on foreign ownership of plantation land. We have recently reduced our TP to RM3.50 (from RM3.75) to incorporate this risk (Refer to Sector Update on 25-Aug-2014).

Valuation  Maintain our TP of RM3.50 based on unchanged Fwd. PER of 17.3x on FY15E EPS of 20.2 sen. Our 17.3x Fwd. PE is based on -0.5SD due to the Indonesia foreign ownership limit risk and the need to start replanting its Sabah estate soon.

Risks to Our Call Higher-than-expected CPO prices.

 Higher-than-expected FFB growth.

Source: Kenanga