• 9MFY17 earnings below our expectation

• Buoyed by recovery in FFB production and CPO price

• FFB production lower than expected

• Maintain NEUTRAL with revised TP of RM3.53 reflecting EPS reduction and valuation rollover to FY18

9MFY17 earnings below our expectation. IJM Plantations (IJMP) 9MFY17 core net income of RM95.2m was within consensus expectations at 79% of consensus full year estimates. Nevertheless, the core net income was below our expectation (at 64% of our full year estimate) due to weaker-than-expected FFB production and higher-than-expected cost of production.

Earnings improved qoq due to recovery in FFB production and better CPO price. IJMP reported 3QFY17 core net profit of RM40.5m (+16%qoq). Note that we have excluded forex loss of RM16.9m in our core net income calculation. The higher core net profit on sequential basis was caused by higher FFB production (+4%qoq) and CPO price (+9%qoq). The increase in FFB production was due to 52% increase in FFB production from Indonesian estates which more than enough to offset the 22% decline in FFB production from Sabah estates. FFB production from Indonesian estates continues to recover from the lagged impact of dry weather which hampered its crop production in 1QFY17.

FFB production lower than expected. IJMP core net profit in 9MFY17 was higher at RM95.2m (+67%yoy). The higher cumulative income was mainly due to the recovery in CPO prices (+26.4%yoy) which mitigated the weaker FFB production. 9MFY17 FFB production was 5% lower due to the lagged impact of dry weather. The recovery in FFB production was slightly weaker than our expectation as we had previously forecasted production +5% growth for FY17. As such, we are now revising our FFB production forecast to flat growth in FY17.

Maintain Neutral with a revised TP of RM3.53. We revise downwards our earnings forecast for FY17/18 by 11%/21% to account for the lower-than-expected FFB production and the higher-than-expected cost of production. Nonetheless, our TP has been revised to RM3.53 (previously: RM3.30) as we rolled over our valuation to FY18, based on unchanged 18.6x Forward PE on FY18 EPS of 18.95sen. Maintain Neutral on IJMP due to the flattish FFB production outlook.

Source: MIDF Research - 24 Feb 2017