IJM Plantations Berhad (IJMPLNT) recorded FY17 Core Net Profit (CNP*) of RM113m, just missing consensus?s estimates at 94% and below our forecast at 91%. A dividend of 7.0 sen announced, which we deem above our 6.4 sen estimate. We lower FY18E CNP by 16% reflecting more conservative growth estimates, while introducing FY19E CNP of RM150m. Maintain OUTPERFORM call with lower TP of RM3.60.

FY17 misses estimates. IJMPLNT FY17 CNP came in at RM113m, which was below expectations, making up 94% of consensus? RM123m forecast and 91% of our RM125m estimate, likely due to higher-than-expected fixed cost on newly matured plantation areas. Full-year FFB production at 862k metric tons (MT) met our 897k forecast at 96%. A final dividend of 7.0 sen was declared, which came in above our 6.4 sen estimate.

Price push. YoY, CNP jumped 2.4x from a low base as Malaysian operations rebounded from 2015 droughts with 1.6x higher PBT to RM130m. This came as full-year production decline narrowed to -3% (from -9% in 9M17), while Malaysian prices jumped 29% to average RM2,753/MT. Indonesian PBT soared to RM38m (from RM0.3m) as production rose 8% in tandem with higher CPO prices (+36% to RM2,589/MT).QoQ, CNP softened 55% to RM18m as seasonally softer FFB production beat CPO price improvement. Malaysia PBT weakened 13% on 29% lower FFB volume, though CPO prices improved 8% to RM3,075/MT. Meanwhile Indonesian PBT reversed to RM15m (from loss before tax (LBT) of RM2m) on lower forex losses for the quarter (RM4m against RM17m previously). CPO prices were also slightly higher (+5% to RM2,788/MT) while FFB production softened 7%.

Resuming growth trajectory. We gather that Indonesian production is set to continue its growth path as c.2700 hectares of the planted area are set to mature in the coming year. Meanwhile, Malaysian production is close to normalization, and should see solid YoY growth, potentially in double digits. We estimate group FFB production to maintain its growth trend, at 12-9% in FY18-19E, above the sector average of 8%.

We reduce FY18E CNP by 16% to RM130m, while introducing FY19E CNP of RM150m. FY18E CNP reduced 16% to RM130m as we update our cost assumptions to reflect higher maintenance cost on maturing area and slightly more conservative growth estimates.

Reiterate OUTPERFORM with lower TP of RM3.60 (from RM3.92) as we roll forward our valuation base year to average CY17-18E (from CY17E) and account for lower FY18E earnings, resulting in lower EPS of 15.3 sen (from 16.7 sen). Our Fwd. PER is unchanged at 23.5x PER, as we maintain our valuation basis of +0.5SD, in line with other planters with above-average FFB growth prospects. With high maturing area and minimal production risks going forward, we reiterate our OUTPERFORM call on IJMPLNT.

Source: Kenanga Research - 26 May 2017