IJM Plantations (IJMPLNT) 9M17 CNP at RM91m came in within consensus and our forecast at 79% and 76%, respectively. No dividend was declared, as expected. We maintain FY17-18E CNP at RM125-154m. No change to our OUTPERFORM call and TP of RM3.92 based on unchanged Fwd. PER of 23.5x on CY17E EPS.

9M17 meets expectations. IJM Plantations Berhad (IJMPLNT)?s 9M17 CNP at RM91m met consensus RM121m forecast at 79% and was within our RM125m forecast at 76%. Group FFB production was also within our expectations at 664.9k metric tons (MT), making up 74% of our forecast. No dividend was announced, as expected.

Price support. YoY, CNP improved 22% despite 5% lower FFB volume, as CPO prices improved 26-35% while PK prices shot up 76% on the back of tight supplies. Despite a 9% FFB decline in Malaysia, PBT rose 72%, while Indonesian operations reversed losses to a PBT of RM23m on better prices and slightly recovered FFB production (+2%). QoQ, CNP edged up 5% as better CPO and PK prices (+9-11%) helped offset down-season production in Malaysia (-22% to 119.4k MT). Meanwhile, Indonesia slipped into losses on higher unrealised forex losses and higher plantation maintenance cost of young areas, despite substantial FFB growth (+53%) during the quarter.

Supported by young trees. Going forward, we expect IJMPLNT to see above-average FFB growth in the long-term, thanks to its young maturing area in Kalimantan. We expect FY17-18E FFB growth at 6-12%, compared to the CY16-17E sector average growth of 1-7%. With a comparatively stable YTD USD/MYR rate, we expect to see less forex-related earnings volatility in the short- term, though note that net impact is neutral as forex movements are excluded from our core net profit calculations. We expect 4Q17 to end on a good note, as YTD CPO prices of RM3,270/MT remains supportive against the 2016 average of RM2,650/MT (+23%).

FY17-18E CNP maintained at RMM125-154m as 9MH17 CNP is in line with our forecast.

Maintain OUTPERFORM with unchanged TP of RM3.92. We maintain our TP of RM3.92 based on unchanged Fwd. PER of 23.5x Fwd. PER applied to CY17E EPS of 16.7 sen. Our Fwd. PER of 23.5x is based on +0.5SD valuation which we think is justified by IJMPLNT?s FY17-18E above-average FFB growth, while long-term growth is supported by IJMPLNT?s young average tree age of c.8 years. Furthermore, we note that current CY17E PER at 20.1x offers nearly a 10% discount against the sector average of 21.9x. Hence, we reiterate our OUTPERFORM call on IJMPLNT.

Risks to our call include slower-than-expected FFB production recovery and lower-than-expected CPO or PK prices.

Source: Kenanga Research - 24 Feb 2017