IJMP’s 1QFY14 earnings were greatly below expectations, due to higher costs  at  its  young  Indonesian  estates  and  some  sales  f  carried-forward  inventories  at  lower  prices.  While  we  expect  double-digit  FFB production growth over the next few years, the still weak CPO prices do not bode well for a pure upstream planter like IJMP. Maintain SELL, with a revised MYR2.46 FV (from MYR3.00), based on 16x CY14 EPS. 
 
- Below  expectations.  IJM  Plantations  (IJMP)’s  1QFY14  core  net  profit was below our and consensus expectations, coming in at 6.6-7.5% of the FY03/14 full-year forecasts. The main causes were: (i) lower crude palm oil  (CPO)  prices  at  MYR2,234/tonne  (vs  our  MYR2,340  projection),  and (ii)  lower  EBIT  margins  of  8%  (vs  our  30%  projection)  due  to  higher production costs.  

- 1QFY14 core net profit fell 68% y-o-y despite a 23% rise in turnover. Turnover rose due to  a 37% increase in CPO sales volume, offset by a 30%  decline  in  CPO  prices.  However,  net  profit  declined  due  to:  (i) higher  phasing-related  upkeep  costs  and  higher  young  mature  areas  in Indonesia,  which  incurred  full  maintenance  costs  amid  startup  low  crop yields,  (ii)  startup  costs  for  a  new  CPO  mill  in  Indonesia,  which  is  still running  at  low  utilisation  rates,  (iii)  sales  of  carried-forward  inventories (CPO sales were 17.7% higher than production) at lower market prices.  

- Lower earnings  forecasts  on  higher production  cost  at  Indonesian estates.  We  are  revising  our  net  profit  forecasts  downwards  by  33.6% for FY14 and 12.8% for FY15, to incorporate higher production costs at IJMP’s Indonesian estates.  

-  Maintain  SELL.  We  maintain  our  SELL  recommendation  on  the  stock, with  a  revised  MYR2.46  FV  (from  MYR3.00),  based  on  an  unchanged P/E target of 16x CY14 earnings. Despite decent double-digit fresh fruit bunches  (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 P/E valuation of 18-19x FY14 remains relatively high vis-à-vis its peers’ 16-18x.

Source: RHB