KEY INVESTMENT HIGHLIGHTS

• 4QFY20 normalised earnings increased by +167.8%yoy to RM10.1m, mainly due to higher CPO price (+43.6%yoy)

• Meanwhile, the group’s FY20 results has also turned into black to RM30.6m from a prior loss of –RM18.0m in FY19

• Moving forward, the resilient FFB production could partially mitigate the persistent higher cost of production which cap the earnings growth

• We are maintaining our earnings estimates for FY21/22

• Maintain NEUTRAL with a revised TP ofRM1.70

Below expectation. IJM Plantation Bhd’s (IJMPLNT) 4QFY20 normalised earnings improved to RM31.0m (+167.8%yoy), mainly due to higher average selling price (ASP) of CPO of RM2,767 (+43.6%yoy). Meanwhile, the group recorded a FY20 normalised earnings of RM30.6m against a normalised losses of –RM18.0m in 1FY19. The positive earnings were mainly attributable to the higher ASP of CPO and higher FFB production. However, this was still below ours and consensus expectations, accounting for 82.7% and 85.3% of full year FY20 earnings forecast. Note that the FY20 normalised earnings exclude forex exchange losses of -RM87.1m due to the drastic devaluation of the Rupiah against US Dollar and Japanese Yen denominated borrowings and fair value gain on the CPO pricing swap of +RM7.9m.

Resilient FFB production partially underpinned earnings momentum. IJMPLNT’s FY20 positive earnings position was primarily driven by the increase in FFB production and higher CPO prices in FY20. Both the Malaysia and Indonesia estates have higher FY20’s FFB output which increased by +0.5% and +30.3% to 619.4k mt and 861.7k mt respectively. Meanwhile, Malaysia and Indonesia’s FY20 CPO price also trended higher by +6.8%yoy and +11.2%yoy to RM2,269/mt and RM2,052/mt. Moving forward, we expect the higher FFB production to continue to provide partial support to earnings growth.

Expansion in EBIT margin. On an annual basis, the EBIT margin of the group inched up by +0.4ppts yoy to +0.8% which is premised on higher CPO price. Consequently, this led to higher normalised PATAMI margin of +4.1%, representing an increase of +7.0ppts yoy.

Dividend. In FY20, the group declared a total dividend of 2.0sen per share payable on 18 August 2020. Note that the dividend payment was one sen lower than our forecast. Thus, we revised downward our forecast dividend of the group to 2.0sen from 3.0sen in FY21 and maintain an estimated dividend payment of 3.0sen for FY22 and FY23.

Earnings estimates. We are maintaining our FY21/22 earnings estimates at this juncture as we have adjusted our forecasts accordingly in our previous plantation sector report dated 11th June 2020.

Source: MIDF Research - 29 Jun 2020