INVESTMENT HIGHLIGHTS

• 1HFY18 earnings below expectations

• Earnings flattish qoq

• Lower earnings in 1HFY18

• Maintain NEUTRAL with a revised TP of RM2.85

1HFY18 earnings below expectations. IJM Plantations (IJMP) 1HFY18 core net income of RM35.6m was below expectations, meeting only 26% and 31% of our and consensus full year estimates respectively. The negative deviation was due to higher-than-expected production cost.

Earnings flattish qoq. On sequential basis, IJMP core net income of RM17.9m in 2QFY18 increased by a marginal 1%qoq, mainly due to higher sales volume. Nevertheless, FFB production was lower qoq at 224k mt (-7%qoq) in 2QFY18 while CPO prices in 2QFY18 declined 3%qoq to RM2683/mt.

Lower earnings in 1HFY18. IJMP 1HFY18 earnings fell 35%yoy to RM35.6m despite recorded higher topline (+12%yoy) mainly due to higher production costs from increased replanting activities in Malaysian operations. IJMP also incurred full fixed plantation maintenance and overhead costs for its young mature areas. In 1HFY18, FFB production is 9.9% higher while CPO price was 5% higher at RM2718/mt.

Maintain Neutral with a revised TP of RM2.85. We reduce our earnings forecast for FY18/19 by 9.6%/7.8% after inputting higher cost of production. Correspondingly, our TP for IJMP has been revised to RM2.85 (previously: RM3.15), based on 19.5x Forward PE on FY18 EPS. Maintain Neutral on IJMP due to its subdued earnings outlook.

Source: MIDF Research - 29 Nov 2017