KEY INVESTMENT HIGHLIGHTS

• 2QFY21 normalised earnings came in stronger at RM40.2m, supported by higher commodity prices
• This led to 1HYF21 normalised earnings of RM27.6m, better than our expectation
• Concern on quantum of FFB growth due to labour shortage issue and adverse weather condition
• Production cost to remain elevated, possibly higher as compared to its peers
• Maintain NEUTRAL with a revised TP of RM1.82

A profitable quarter. IJM Plantations Bhd’s (IJMP) reported 2QFY21 loss of -RM1.0m. However, after excluding exceptional items of RM41.3m, 2QFY21 normalised earnings amounted to RM40.2m. The bulk of the exceptional items mainly related to forex loss from operations of -RM35.0m. The improvement in earnings was mainly led by higher revenue of 211.4m (+22.3%yoy) as the group benefited from higher commodity prices. However, the earnings were partially impacted by the lower production from the Indonesian operation in view of adverse weather effects.

Exceeded expectation. Cumulatively, 1HFY21 normalised earnings amounted to RM27.6m as compared to a loss of -RM9.1m achieved for 1HFY20. This came in better than expectation, accounting for 71.6% of full year FY21 earnings estimates.

Malaysia. 1HFY21 PBT came in at RM56.1m which was more than six fold as compared to 1HFY20 PBT of RM8.6m. This was mainly premised on higher commodity price as well as sales volume. For 1HFY21, prices of CPO and PKO came in higher at RM2,516/mt (+28.8%yoy) and RM2,888/mt (+29.4%yoy) respectively. Meanwhile, CPO sales increased by +17.6%yoy to 72.2k mt.

Indonesia. The Indonesia operation recorded 1HFY21 PBT of RM56.8m from a LBT of –RM18.9m in 1HFY20. This was driven by +25.9%yoy improvement in CPO sales to 81.0k mt as well as +19.5%yoy recovery in CPO price to RM2,2,177/mt.

Earnings estimates. We are increasing FY21/22/23 earnings estimates to RM95.1m/110.2m/128.0m respectively as we revise upward our CPO sales assumption. In addition, we also adjust our effective tax rate assumption to better reflect the results thus far.

Target price. Post our earnings adjustment, we are revising our target price to RM1.82 (previously RM1.75). This is premised on pegging the group’s FY22 book value of RM1.65 to price-book ratio (PBR) of 1.1x which is the group’s two-year historical average.

Maintain NEUTRAL. The group’s improvement in earnings has largely been contributed buy the advancement in commodity prices. Moving forward, as we assume the CPO prices would remain favourable, future earnings would remain on the uptrend. However, there is a concern on slower growth rate for the FFB segment for both the Malaysian and Indonesian operation in view of labour shortage and adverse weather condition. Moreover, we expect production to remain elevated mainly due to the increase in fertiliser cost. In this regard, we view that the group’s production cost could be higher in comparison with its peers. These factors would potentially limit the future earnings growth of the group. As we do not foresee any significant rerating catalyst at this juncture, we are maintaining our NEUTRAL recommendation on IJMP.

Source: MIDF Research - 26 Nov 2020