IJMP’s FY03/13 earnings were below expectations, disappointing on both the FFB production as well as CPO price achieved. Going forward, although we expect decent double-digit FFB production growth over the next few years, the still weak CPO prices would not bode well for a pure upstream planter like IJMP. In addition, its PE valuation of 19-20x FY14 remains relatively high vis-à-vis its peers of 16-18x. Maintain Sell with a revised fair value of MYR2.90 (based on 16x CY14 EPS).

-  Below expectations. IJM Plantations FY03/13 net profit was below our and consensus expectations, coming in at 92-94% of forecasts. The main variances with our forecast include slightly lower-than-expected FFB production growth of 3% yoy (versus our +4% yoy projection), CPO price of MYR2,620/tonne (versus our projected MYR2,650/tonne) and EBIT margin of 31.9% (versus our projected 32.7%). IJMP declared a first and final single tier DPS of 7 sen (vs our projected 8 sen) for FY13, which implies a net payout rate of 49% (ex-EI) and net yield of 2.3%.  

- Improving FFB growth prospects. Over the next few years, we expect IJMP to post double-digit FFB growth of 11-13% yoy, due to increasing maturity at its Indonesian estates. In FY03/13, its Indonesian estates produced 55,939 tonnes of FFB, which we expect to more than double by FY03/14, contributing about 16% to total group production. Earnings contribution from the Indonesian estates are, however, expected to only contribute more significantly (>10%) to group profits from FY03/17, as unit costs are usually higher in the first few years of maturity.     

-  Forecasts revised for lower CPO price assumptions. We have revised our forecasts downwards by 20-21% for FY03/14-15, after imputing our recent sector-wide downgrade in CPO price assumptions. We now assume CPO prices of MYR2,340/tonne for FY03/14 (from MYR2,665) and MYR2,457/tonne for FY03/15 (from MYR2,805). We also introduce our FY03/15 forecast with a CPO price assumption of MYR2,457/tonne. Note that our CPO price assumptions have imputed a discount based on the export tax rate applicable at these prices.  

- Sell maintained. We maintain our Sell recommendation on the stock with revised fair value of MYR2.90. Despite decent double-digit FFB production growth projected for the next few years, the still weak CPO prices would not bode well for a pure upstream planter like IJMP. In addition, its PE valuation of 19-20x FY14 remains relatively high vis-à-vis its peers of 16-18x.

Source: RHB