Period

4Q15/FY15

Actual vs. Expectations

IJM Plantation (IJMPLNT)’s FY15 core net profit of RM142m beat consensus expectations, at 108% of consensus’ forecast (RM130m) and within ours at 95% of our forecast (RM150m).

Dividends

An interim dividend of 6.0 sen was announced, below our expected 8.0 sen.

Key Results Highlights

YoY, FY15 CNP improved 30% to RM142m as group FFB volume rose 18% to 862k MT thanks to its young Indonesian plantations, which saw FFB production jumping 89% to 273k MT. This more than offset lower average realised CPO prices of RM2,289/MT (-4%).

QoQ, the group saw LBT of RM15m during the quarter as FFB volume fell 30% to 165k MT while CPO prices were flat at RM2,212/MT (+2%). However, 4Q15 CNP was flattish at RM33m (+3%) mainly due to positive deferred taxes claimed on its Indonesian division losses.

Outlook

We expect CPO prices to continue trading rangebound around our CY15E forecast of RM2,200/MT, which is 8% lower YoY. However, we think IJMP’s solid FY16E FFB growth of 16% (higher than the sector average growth of 5%) should help offset weaker CPO prices.

Nevertheless, management has guided that production cost pressure could persist in Indonesia due to higher maintenance and overhead costs.

Change to Forecasts

We maintain our FY16E earnings of RM161m and introduce our FY17E forecast of RM177m.

Rating

Maintain MARKET PERFORM Despite IJMPLNT’s strong FFB growth potential of 16%, we think upside could be capped by weak CY15 CPO prices. Meanwhile, a volatile USD could skew earnings due to IJMPLNT’s borrowings of RM715m, which are entirely denominated in USD.

Valuation

We increase our TP to RM3.65 (from RM3.57) based on an updated 20x Fwd. PER (previously 19x) on marginally lower FD EPS of 18.2 sen (previously 18.8 sen).

Our Fwd. PER implies a +0.5SD valuation basis which we think is fair due to IJMPLNT’s higherthan- average FFB growth rate. Note that we assign mean valuation to planters with average FFB growth (5%).

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected FFB growth.

Source: Kenanga Research - 27 May 2015