IJMPLNT’s 1Q17 CNP at RM19.8m was below consensus at 15% of full-year estimate, but we deem it broadly within our forecast at 18% as historically 1Q tends to be the weakest quarter, delivering 19% of the full-year performance. No dividend declared as expected. We maintain our FY17-18E earnings forecasts but upgrade our call to MARKET PERFORM (from UNDERPERFORM) with higher TP of RM3.60 (from RM3.15) as we roll forward our valuation base year to CY17.

1Q17 below consensus estimate, broadly within ours. IJM Plantations (IJMPLNT) 1Q17 Core Net Profit (CNP*) at RM20m missed consensus’ RM133m forecast at 15%. However, at 18% of our RM110m forecast, we deem the results broadly within our estimates as 1Q results tend to be the weakest quarter, averaging 19% in the last 5 years. No dividend was announced as expected.

Supported by stronger prices. YoY-Ytd, CNP declined 41% mainly on weaker FFB volume (-16%) and higher taxes (30%, from 14%). PBT from Malaysia weakened 17% as a 19% hike in CPO prices to RM2,570/MT failed to offset drought-weakened FFB production losses (-24%). Meanwhile, Indonesian PBT jumped significantly to RM18m from breakeven as CPO price improvement (+20%) made up for flat FFB production (-3%). QoQ, CNP saw a reversal from RM41m LBT to RM20m PBT on higher CPO prices and FFB volume recovery. Malaysian PBT reversed to RM21m as CPO prices rose 12% and FFB volume jumped 71% to 107k MT. Indonesia PBT strengthened 9% on better CPO prices (+20%) which was offset by slightly weaker FFB production (-5% to 84k MT).

Brighter six-month outlook. We expect 2Q-3Q16 earnings to improve against 1Q17 as combined FFB production had historically made up 55% of full-year production. Meanwhile, 2Q16 CPO prices are currently supportive due to weak inventories and 3Q16 prices could see upside should a strong La Nina scenario pan out.

FY17-18E CNP maintained at RM110-142m as 1Q17 results are in line with our estimates.

Upgrade to MARKET PERFORM with higher TP of RM3.60. We increase our TP to RM3.60 (from RM3.15) as we roll forward our valuation base year to CY17E (from average CY16-17E) for higher FD Core EPS of 15.3 sen (from 13.4 sen). Our Fwd. PER is maintained at 23.5x based on +0.5SD valuation, as IJMPLNT’s FY17-18E FFB growth (6-12%) remains above sector average (3- 9%). We also upgrade our call to MARKET PERFORM (from UNDERPERFORM) as we turn more optimistic on short-term earnings prospects as we enter into a high production season combined with relatively supportive CPO prices.

Source: Kenanga Research - 25 Aug 2016