9MFY20 CNP of RM21.8m is deemed above both our (71%) and consensus’ (104%) estimates premised on our view of a strong 4QFY20. Deviation was mainly due to higher-than expected OER from Indonesia. 9MFY20 FFB output of 807k MT (+11% YoY) is within at 78%. No DPS, as expected. Consensus FY20-21E earnings of RM21.1-RM57.9m are not reflective of IJMPLNT’s earnings recovery, making earnings upgrade a potential catalyst. Reiterate OUTPERFORM with an unchanged TP of RM2.90 on CY20E PBV of 1.46x (+1.0SD). Current price implies -0.75SD valuation, which we believe is unwarranted.

Above expectations. 3QFY20 registered CNP of RM31.0m, bringing 9MFY20 CNP to RM21.8m, which we deem above our/consensus’ estimate at 71%/104%, premised on our view of a strong 4QFY20. The deviation mainly stemmed from higher-than-expected Indonesian OER, estimated at c.25% (vs. our expected 22%). Meanwhile, 9MFY20 FFB output of 807k MT came within our estimate of 1.03m MT, at 78%. No dividend was declared, as expected.

Plantation takes off. YoY, 9MFY20 returned to the black, registering CNP of RM21.8m a near mirror image of 9MFY19’s CNL of RM21.9m, boosted by: (i) higher average CPO price (+1%), and (ii) higher FFB output (+11%). QoQ, 3QFY20 recorded CNP of RM31.0m (vs. CNL of RM0.4m in 2QFY20) also stemming from a more pronounced impact of higher average CPO price (+23%) and higher FFB (+17%). For these reasons, EBIT margin expanded (+10ppt) to 10.9%.

Strong earnings not priced in by consensus. Benchmarked from 3QFY20 earnings, we believe 4QFY20 is on course to stage another strong quarter driven mainly by higher CPO prices (MPOB QTD- 4QFY20: +15%), despite our expectation of seasonally slower 4QFY20 FFB output. That said, we believe consensus FY20-21E earnings of RM21.1-RM57.9m are not reflective of the strength of the potential earnings rebound. As reference, consensus FY20E earnings of RM21.1m implies a breakeven in 4QFY20, which we think is nearly impossible. As such, potential earnings upgrade from consensus could serve as a catalyst for a stock price rally. Note that our FY20-21E earnings post adjustment (refer to paragraph below) are 114-70% higher than consensus.

Raise FY20-21E CNP by 47-10% to RM45.1-98.7m (low base effect) on higher Indonesian OER (+2.8ppt).

Subsiding earnings risks; Reiterate OUTPERFORM with an unchanged Target Price of RM2.90 based on an unchanged PBV of 1.46x (+1.0SD) applied on CY20E BV/share of RM1.99. At current price, IJMPLNT is only trading at an unjustified CY20E PBV of 0.89x (8% discount to peers), implying merely -0.75SD valuation. This is despite: (i) the strong earnings recovery, (ii) potential consensus earnings upgrade, and (iii) low EV/planted Ha of RM25k, implying c.37% discount to smaller planters’ average EV/planted Ha of RM40k.

Risks to our call include: (i) lower-than-expected CPO price realized, and (ii) a precipitous increase in labour/fertiliser/transportation cost.

Source: Kenanga Research - 26 Feb 2020