Period

1Q16

Actual vs. Expectations

IJM Plantation (IJMPLNT)’s 1Q16 core net profit (CNP*) of RM29m came in within the consensus (RM141m) at 20% of estimate but slightly below our forecast (RM164m) at 18%. Note that 1Q results historically averaged 21% of full-year results in the last 5 years.

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 1Q16 CNP fell 35% to RM29m on lower CPO prices (-16% to RM2,167/MT) and PKO prices (- 17% to RM3,225/MT) and was only partly offset by higher FFB production (+5% to 228k MT).

QoQ, CNP declined 14% on higher tax expense (RM4m) compared to the previous quarter’s tax credit (RM21m). Otherwise, PBT saw a turnaround to RM26m as FFB production jumped 38%, well offsetting lower CPO prices (-2%). This resulted in higher Malaysia PBT (+169% to RM25m) and a turnaround in Indonesia PBT (RM1m from – RM24m).

Outlook

In the near-mid-term, we expect CPO prices to trade closer to our CY15 forecast of RM2,200/MT, which is 8% lower YoY. However, we think IJMPLNT’s solid FY16E FFB growth of 12% (higher than the sector average growth of 7%) could partially 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 tweak our FY16E CNP by -6% to RM154m after housekeeping adjustments, including higher labour cost and lower transportation cost. No change to our FY17E forecast.

Rating

Maintain MARKET PERFORM Despite IJMPLNT’s good FFB growth potential of 12%, we think upside could be capped by weak CY15 CPO prices. However, long-term outlook is decent as we expect CPO prices to rise 9% to RM2,400/MT in CY16.

Valuation

TP lowered to RM3.50 (from RM3.73) based on an unchanged 20x Fwd. PER on lower FY16E EPS of 17.5 sen (from 18.6 sen). Our Fwd. PER implies a +0.5SD valuation which we think is fair due to IJMPLNT’s higher-than-average FFB growth rate. Note that we assign mean valuation to planters with average FFB growth (7%).

Risks to Our Call

Lower-than-expected CPO prices.

Lower-than-expected FFB growth.

Source: Kenanga Research - 26 Aug 2015