We deem 1HFY21 CNP of RM21.4m as within our (36%) and consensus’ (34%) expectations. 1HFY21 FFB output of 524k MT (+5% YoY) is within at 48%. However, should heavy rainfall persist in Indonesia causing severe floods, there could be downside risk to our FY21E FFB growth of 3%. We believe market has already priced in earnings improvement arising from firmer CPO prices. On PER/PBV valuation, IJMP is traded at 25%/54% premium to its closest peer, despite lower-than-expected FFB growth and high net gearing of 0.5x. Hence, UNDERPERFORM maintained with an unchanged TP of RM1.70 based on CY21E PBV of 1.2x (-0.5SD).

1HFY21 deemed within expectation. 1HFY21 registered CNP of RM21.4m (vs. CNL of RM9.1m), which is deemed as within our (36%), and consensus’ (34%) expectations. Note that we have excluded forex gains amounting to RM56.8m among others to arrive at our 1HFY21 CNP. 1HFY21 FFB output of 524k MT (+5% YoY) is within our estimate at 48%. The absence of DPS is also as expected.

Lifted by higher CPO price. YoY, both higher average CPO price (+27%) and higher FFB output (5%) contributed to the group’s return to the black – by registering CNP of RM21.4m (vs. CNL of RM9.1m in 1HFY20). QoQ, 2QFY21 recorded CNP of RM33.9m (vs. CNL of RM12.6m in 1QFY21), due to: (i) higher average CPO price (+16%), and (ii) lower tax expense (-97%). These were partially offset by lower FFB output (-9%).

Potential downside to FY21EFFB output.Recall that management’s FY21 FFB growth guidance was toned down recently (from +5%) to flat-to-slight increase. While we deemed 1HFY21 FFB output as within our estimate at 48% (our FY21E FFB growth: +3%), there could be downside risk if heavy rainfall persists in Indonesia. Having said that, currently there is no severe flooding situation in Indonesia. We highlight our downside bias towards CPO price in the near-term. Based on our previous meeting with management, they are also of the view that it would be difficult to sustain prices at these elevated levels. Meanwhile, FY21 CPO production cost is expected to increase slightly on the back of: (i) higher labor cost, and (ii) a 5% increase in overall fertilizer costs, in line with our expected c.RM2,000/MT.

No changes to earnings estimate as results are in-line with expectations

Maintain UNDERPERFORM with an unchanged TP of RM1.70 based on a CY21E PBV of 1.2x, reflecting -0.5SD valuation. At current price, IJMP is trading at a stretched CY21E PBV of 1.30x (54% premium to its closest peer’s PBV of 0.85x), while on PER valuations, IJMP is trading at CY21E PER of 25x (25% premium to closest peer). This is despite lower-than-expected FFB growth potential and higher net debt-to-equity ratio of 0.5x (vs. peer’s net cash position). Risks to our call include: (i) higher-than-expected CPO price realized, (ii) better-than-expected FFB production, and (iii) a precipitous decline in labour/fertilizer/transportation costs.

Source: Kenanga Research - 26 Nov 2020