KEY INVESTMENT HIGHLIGHTS

• 1QFY21 normalised loss of –RM12.6m came in below ours and consensus expectations

• The loss-making position was mainly impacted by elevated operating cost and higher effective tax rate

• Expectation of improved crop production and favourable CPO price to support the revenue generating capability

• However, future earnings growth would primarily depend on the group’s ability to control cost

• Maintain NEUTRAL with a revised TP of RM1.68

Below expectation. IJM Plantations Bhd’s (IJMP) reported 1QFY21 profit of RM82.1m. However, after excluding exceptional items to RM94.7m, 1QFY21 normalised loss came in at –RM12.6m. The bulk of the exceptional items mainly relate to net forex gain from operation amounting to RM91.7m. This was despite higher 1QFY21 revenue of RM206.0m (+82.2%yoy). IJMP’s 1FY21 financial performance came in below ours and consensus expectations. We view that the underperformance was mainly due to higher-than-expected production cost as well as higher income tax. The latter was due to nondeductibility of certain expenses for tax purposes.

Malaysia. 1QFY21 revenue from the Malaysian operation increased by +44.5%yoy to RM94.5m. This was mainly due of higher CPO sales volume of 36.1k mt (+21.7%yoy) and favourable CPO price of RM2,318/mt (+20.7%yoy).

Indonesia. 1QFY21 revenue from the Indonesian operation improved by +54.8%yoy to RM111.5m. This was driven by +95.2%yoy improvement in CPO sales to 44.9k mt as well as +13.5%yoy recovery in CPO price to RM2,066/mt.

Earnings estimates. We are reducing FY21/22/23 earnings estimates to RM38.6m/56.0m/77.6m respectively as we input higher production cost assumption as well as higher effective tax rate into our computation.

Target price. We are rolling forward our valuation base year to FY22. Coupled with the changes to our earnings estimates, we are deriving a new target price of RM1.68 (previously RM1.70). This is premised on pegging the group’s FY22 book value of RM1.53 to price-book ratio (PBR) of 1.1x which is the group’s two-year historical average.

Maintain NEUTRAL. The group’s revenue has been improving steadily due to a combination of favourable CPO price as well improvement in crop production. Note that the growth in FFB production will primarily stem from Indonesia in view of replanting activities at Malaysia

Source: MIDF Research - 27 Aug 2020