Near-term prospects are unexciting, stemming from flat FY22 FFB growth guidance while CPO price upside is capped. With fertilizer cost higher by 7-10% YoY, FY22 production cost should creep higher towards RM2,100/MT. We estimate 4QFY21 CNP of c.RM28m (higher CPO price negated by lower FFB output). Cut FY22E CNP by 8%. Maintain MP with a lower TP of RM1.80 (from RM1.95) on CY21E PER of 18x.

FFB growth prospects remain unexciting. Based on Bursa announcement, FY21 FFB output is at 1.06m (flat YoY). The group is also projecting flat FY22E FFB growth (vs. our 3% growth estimate) as prolonged dry weather in 2019 affects sex ratio, pollination and bunch numbers. There is further downside risk to FFB output should labour shortage worsen, especially during peak crop season (Sept onwards).

CPO price upside capped. Given Indonesia’s biodiesel levy and export tax structure, we think realized CPO price for the region will be capped at c.RM2,600/MT. This has been confirmed by management. The group also has forward sales of 10-15% of its production in Malaysia on a 12-month rolling basis. No official CPO price forecast was provided, but management believes that: (i) elements of speculation are present at current elevated levels, and (ii) CPO price should correct in line with peak crop season. However, we differ as we think CPO price has peaked and should correct in the near-term. Our sector CPO price forecast is RM3,000/MT.

FY21 CPO production cost to expected to remain stable with Malaysia at c.RM1,800/MT, and Indonesia at c.RM2,000/MT. Overall, the group’s FY21 CPO production cost should come in at c.RM2,000/MT (compared to our expected RM2,100/MT for the group). However, with FY22 fertilizer locked in (up 7-10% YoY) and our expectation of slight minimum wage increase, we are keeping our FY22 production cost at c.RM2,100/MT.

4QFY21 earnings preview. We think earnings in 4QFY21 is likely to decline sequentially as higher CPO price (MPOB: +16% QoQ) should be negated by lower FFB output (-18% QoQ). Overall, we estimate 4QFY21 CNP of c.RM28m.

Keep FY21E CNP unchanged as lower FY21 production cost of RM2,000/MT negates flat FFB growth (vs. 2% previously). Reduce FY22E CNP by 8% on lower FFB growth of 1% (vs. 3% previously).

Maintain MARKET PERFORM but with a lower TP of RM1.80 (from RM1.95) based on CY21E PER of 18x. At current price, IJMP is traded at CY21E PER/PBV of 17x/1.2x (11%/43% premium to closest peer), offering limited upside, in our opinion. Risks to our call include: (i) higher/lower-than-expected CPO price realized, (ii) severe labour shortage, and (iii) a precipitous rise/decline in labour/fertilizer/transportation costs.

Source: Kenanga Research - 7 Apr 2021