KEY INVESTMENT HIGHLIGHTS

• 3QFY20 results recorded normalised earnings of RM31.0m, premised on both higher CPO prices and sales volume

• Meanwhile, the group’s 9MFY20 results has also turn into black to RM21.8m from a prior loss of –RM21.9m

• However, the expectancy of lower FFB production in 4QFY19 and persistent higher production cost to cap earnings growth

• We are revising upwards our FY20 earnings estimates

• Maintain NEUTRAL with unchanged of TP RM1.92

Swung back into profitability. IJM Plantation Bhd’s (IJMPLNT) 3QFY20 normalised earnings went back into positive territory of to RM31.0m as compared to losses of –RM26.0m in 3QFY19. Meanwhile, the group recorded a 9MFY20 normalised earnings of RM21.8m against a normalised losses of –RM21.9m in 9MFY19. The positive earnings were mainly attributable to the higher average selling price (ASP) of CPO and higher FFB production. This came in slightly above our expectation and exceeds consensus expectations of the FY20 earnings forecast.

Mainly supported by higher CPO prices and sales volume. IJMPLNT’s 9MFY20 normalised positive earnings position was predominantly driven by the increase in FFB production and higher CPO prices in 3QFY20. Both Malaysia and Indonesia estates have higher 9MFY20’s FFB output which increased by +7.5% and +31.3% to about 480.4k mt and 658.5k mt respectively. Meanwhile, Malaysia and Indonesia’s 3QFY20 CPO price also trended higher by +26.4% and +27.6% to RM2,437/mt and RM2,160/mt. This helps the group to achieve a better financial performance.

Expansion in EBIT margin. On a quarterly basis, the EBIT margin of the group jumped by +4.7ppts yoy to +14.9% as EBIT jumped by +143.0%yoy premised on higher CPO price. Consequently, this led to higher normalised PATAMI margin of +13.0%, representing an increase of +31.0ppts yoy.

Earnings estimates. We are revising upwards our earnings estimates for FY20 by +13.2% to RM37.0m, primarily underpinned by higher CPO prices in 4QFY20.

Target price. We are maintaining our TP of RM1.92. This is premised on the group’s FY21 book value per share of RM1.60 to a price-book ratio (PBR) of 1.2x which is the group’s two-year historical average.

Maintain NEUTRAL. The group’s 3QFY20 financial performance has shown improvement in margin as revenue increased by +66.5%yoy due to increased sales volume and higher CPO prices in 3QFY20. In view of the elevated CPO price to above RM2,500/mt into 1QCY20, we expect it would continue to support the group’s profitability in the coming quarters. However, the anticipated lower production in 4QFY20 and potential slowing demand of CPO might dampen sales volume. This is premised on the lower production season as well as the coronavirus outbreak which might lead to logistical constraints and lower consumption of the CPO. In addition, we remain wary on the group’s ability to effectively managed production cost which could partially suppress the improvement in group’s profit margin. All factors considered, we are maintaining our NEUTRAL recommendation.

Source: MIDF Research - 26 Feb 2020