We deem its 1QFY21 CNL of RM12.6m within our expected CNP of RM53.5m (but below consensus’ CNP estimate of RM60.1m) in anticipation of sequential earnings improvement in 2QFY21. 1QFY21 FFB output of 275k MT (+19% YoY) is within at 25%. We expect 2QFY21 to make up for the losses premised on higher CPO prices (QTD 2QFY21: +18% QoQ), alongside higher FFB output (entering peak production). No changes to earnings estimates. After a c.8% sell-off, valuations are more reasonable now. Upgrade to MARKET PERFORM with an unchanged TP of RM1.70 based on FY21E PBV of 1.24x (mean).

1QFY21 deemed within expectation. Despite 1QFY21 CNL widening (44% YoY) to RM12.6m, we deem the results within our expected FY21E CNP of RM53.5m as we anticipate earnings to pick up in 2QFY21. However, the results came below consensus’ CNP estimate of RM60.1m. Note that we have excluded forex gains amounting to RM91.7m among others to arrive at our 1QFY21 CNP. 1QFY21 FFB output of 275k MT (+19% YoY)also came within our estimate at 25%. The absence of dividend was as expected.

1QFY21 dragged by lower CPO price. YoY, despite: (i) higher CPO price (+17%) and (ii) higher FFB output (+19%), 1QFY21 CNL widened (+44%) mainly due to the impact of higher tax expense (from forex gains) of RM27.4m (vs. positive taxation of RM0.3m in 1QFY20). Removing the forex gain of RM91.7m and applying the same ETR would have resulted in CNP of c.RM12.2m. QoQ, 1QFY21 recorded CNL of RM12.6m (vs. CNP of RM13.0m in 1QFY20), also due to higher tax expense (+113%). The impact of lower CPO price (-13%) was negated by higher FFB output (+8%) as evidenced by segmental profit (after adjusting for forex impact).

2QFY21 to make up for losses. Premised on higher CPO price (QTD 2QFY21: +18% QoQ), alongside anticipation of higher FFB output, entering into peak production season, we expect 2QFY21 to return to the black with a vengeance. However, we caution on the possibility of CPO price coming under pressure in the near-term as we enter peak production season.

No changes to earnings estimates as results are in-line with expectations. Valuations are more reasonable after sell-off; Upgrade to MP. Since our downgrade (sector report dated 29-Jul-20), IJMPLNT had shed off c.8% (from RM1.90). Valuations are now at more reasonable level at Fwd. PBV of 1.26x (mean), warranting an upgrade in call. Hence, it is upgraded to MARKET PERFORM with an unchanged TP of RM1.70 based on FY21E PBV of 1.24x (mean).

Risks to our call include: (i) higher/lower-than-expected CPO price realized, (ii) dry weather impact on Indonesia’s production, and (iii) failure to implement bio-diesel mandates.

Source: Kenanga Research - 27 Aug 2020