1QFY22 CNP of RM56.3m is above both our (47%) and consensus’ (38%) expectations due to higher CPO prices. FFB output (+23%) and absence of DPS are as expected. Firm FFB output and strong CPO price should yield sequential 2QFY22 earnings improvement. Raise FY22-23E CNP by 58-15%. Keep our ACCEPT OFFER recommendation given generous premium valuations against closest peer – PER (31%), PBV (92%), and EV/planted Ha (36%). ESG score is 74%.

Above expectation. 1QFY22 registered Core Net Profit (CNP) of RM56.3m (from Core Net Loss [CNL] of RM9.6m) is deemed above both our/consensus’ expectations at 47%/38%, respectively, due to higher CPO prices. 1QFY21 FFB output of 246k MT (-11% YoY) is within our estimate at 23%. Absence of DPS is as expected.

Sequential decline on higher tax expense. QoQ, despite higher average CPO price (+9%) and FFB output (+9%), 1QFY21 fell (-8%) mainly due to higher taxation of RM21.3m. Note that 4QFY21 saw on-off lower tax expense of RM0.3m on deferred tax asset recognition. YoY, 1QFY22 registered a turnaround CNP of RM56.3m (vs. CNL of RM9.6m) as higher weighted average CPO price (+55%) overwhelmed a decline in FFB output (-11%).

Expecting sequential improvement in 2QFY22. After a tug of war in 1QFY22 (higher CPO price and production cancelled by normalization of tax expenses), we think 2QFY22 should improve sequentially. FFB production should remain strong, while QTD-2QFY22 CPO price is up 4% QoQ. However, note that IJMP has c.55% production from Indonesia where realized CPO price are capped due to biodiesel levy and export tax. That said, FY22 will likely be an excellent year for IJMP.

Raise FY22-23E CNP by 58-15% on higher CPO price of c.RM3,100-2800/MT (vs. c.RM2,700-2,650/MT previously).

Keep our ACCEPT OFFER recommendation. At current price, IJMP is valued at premium CY22 valuations against closest peer – PER (31% premium), PBV (92% premium), and EV/planted Ha (36% premium). For the disposal of 56.2% stake in IJMP, shareholders’ approval is required at IJM’s AGM (26th August 2021), and KLK’s EGM (27th August 2021). Thereafter, the closing date of the proposed MGO is estimated to be end-Oct.

Source: Kenanga Research - 25 Aug 2021