INVESTMENT HIGHLIGHTS

• Weak 3QFY19 core earnings at –RM17.1m, resulting in 9MFY19 loss of –RM11.0m

• This is mainly attributable to weak CPO price, especially for the Indonesia palm oil

• FY19 and FY20 earnings estimates reduced to RM11.0m and RM53.96m respectively

• Downgrade to SELL with a lower TP of RM1.25

Remain in loss-making position. IJM Plantation Bhd’s (IJMPLNT) 3QFY19 core loss came in at -RM17.1m from a core profit of RM10.7m 3QFY18. The negative deviation is caused by weaker than expected CPO price and FFB production. As expected, no dividend is announced.

9MFY19 results plunged. IJMPLNT’s cumulative 9MFY19 core loss amounted to –RM11.7m due to the decline in CPO prices by -17.6%/- 23.2% in Malaysia/Indonesia to RM2,204/RM1,881 per tonne. The drop in CPO’s ASP was at a faster pace than the rise in its FFB and CPO production. The plunge was mainly due to the lower price of its Indonesian palm oil. The rise in FFB volume was insufficient to compensate for the decline in CPO price. The combined Malaysian and Indonesian operations produced a total FFB volume of 726,978mt, a mere increase of +2.8%yoy.

Challenging palm oil operations and price outlook for IJMPLNT. IJMPLNT has incurred higher expenses from: i) higher net foreign exchange losses on the US Dollar denominated borrowings in the Indonesian operations, ii) production cost pressure in the Malaysian operations, and iii) full plantation maintenance and overhead against a start-up yield in the Indonesian operations.

Earnings estimates reduced. Premised on the weak CPO price envinroment, we have reduced FY19 and FY20 earnings estimates to RM11.7m and RM53.9m.

Target price. Post our earnings adjustments; we are lowering our target price to RM1.25. This is premised on pegging FY20 EPS of 6.4sen against forward PER of 19.5x.

Source: MIDF Research - 27 Feb 2019