INVESTMENT HIGHLIGHTS

• Weak 1QFY19 earnings

• Sabah estate affected by change in crop pattern

• FY19 earnings estimate reduced by 9% to RM86.6m

• Downgrade to SELL with lower TP of RM2.00

Weak 1QFY19 earnings. IJM Plantation (IJMPLNT) registered headline net loss of RM18.9m in 1QFY19 due to forex loss in operations and borrowings. Excluding these, IJMPLNT core net profit of RM10.8m is below expectation at 11%/16% of our/consensus estimates respectively. The negative deviation is caused by unexpected decline of FFB volume by -8% in 1QFY19. Our CNI calculation excludes forex loss. As expected, no dividend was announced.

Sabah estate affected by change in crop pattern. IJMPLNT FFB volume registered a surprise decline of -8%yoy to 221,053 tonnes in 1QFY19. This is mainly caused by the -22%yoy drop of FFB volume in Sabah estates in which management attributed it to change in crop patterns. Looking ahead, we do expect IJMPLNT FFB production to improve due to seasonally better production but the annual growth has been affected. As a result, we have revised down our FFB volume assumption for FY19.

FY19 earnings estimate reduced by 9% to RM86.6m. FY20 CNI estimate has been cut by -10% to RM87.4m. We have lowered our FFB volume assumption for both years.

Downgrade to SELL with lower TP of RM2.00. The lower TP is due to lower Core EPS estimated for FY19. Valuation method is unchanged by using 19.5x Forward PE (mean valuation) on FY19 EPS estimate. We are downgrading the stock to SELL as we believe that the recent increase in its share price (due to rumours of takeover) may not sustain in view of weak earnings prospect in the near term.

Source: MIDF Research - 29 Aug 2018