INVESTMENT HIGHLIGHTS

• 1QFY20 core loss of –RM4.9m (-143.7%yoy) came in below our and consensus expectations

• This was mainly attributable to lower average selling price (ASP) of CPO and increase in production costs

• Earnings estimates revised downward for FY20 and FY21

• Maintain SELL with an adjusted target price of RM1.16

Reverted to net loss position. IJM Plantation Bhd’s (IJMPLNT) 1QFY20 core losses came in at –RM4.9m against a core profit of RM11.0m in 1QFY19. This came in below both our and consensus expectations of the FY20 earnings forecast. Note that in the preceding quarter were in slight positive financial performance of RM3.8m.

Weak CPO price has negatively impacted earnings. IJMPLNT’s 1QFY20 core loss position was a result of the decline in CPO prices in both Malaysia and Indonesia to RM1,921/mt (-19.8%yoy) and RM1,821/mt (-13.9%yoy) respectively. While we note that FFB production came in higher, it was insufficient to mitigate the declining ASP of CPO. The combined Malaysian and Indonesian operations produced a total FFB volume of 341,782mt in 1QFY20, representing an increase of +20.0%yoy. Moving forward, we opine the group’s profitability to remain under pressure from low CPO price and elevated production cost.

Earnings estimates revised downwards. Premised on the subdued CPO price environment and weaker-than-expected financial underperformance, we are reducing our FY20 and FY21 earnings forecasts to RM27.1m and RM44.3m respectively.

Target price. We are rolling forward our valuation base year to FY21 and derive a new target price of RM1.16 (previously RM1.13). This is premised on pegging core FY21 EPS of 5.3sen against forward PER of 21.8x. Our target PER is the group’s two year historical average.

Maintain SELL. We are of the view that earnings performance of the group to remain dismal in view of higher production costs and weak CPO price environment. Despite the recent recovery of CPO price into 3QCY19, we do not expect it would help significantly in improving the group’s profitability. As such, the earnings prospect in the near term should continue to be bleak. In addition, we expect the elevated cost of production, maintenance, and fertilizer costs to continue to negatively impact the profit margin of the group’s businesses. All factors considered, we are maintaining our SELL recommendation on IJMPLNT.

Source: MIDF Research - 29 Aug 2019