IJMP’s 1HFY14 core net profit was in line with our but below consensus expectations.  Despite  decent  double-digit  FFB  production  growth projected  for  the  next  few  years,  the  group’s  still-young  palms  would continue to  bear high costs,  which will erode  margins. In addition,  the stock’s P/E valuation of 21-22x CY14 remains relatively high vis-à-vis its peers’ 18-20x.  We maintain our Sell recommendation, with MYR2.46 FV.

• Below  consensus  but  in  line  with  our  estimates.    IJM  Plantations (IJMP)’s  1HFY14  core  net  profit  was  in  line  with  our  but  below consensus  expectations,  coming  in  at  52%  and  45%  of  the  respective full-year  estimates.  The  group  recorded  a  surprisingly  large  unrealised loss  on  forex  debt  of  MYR31.1m  in  2QFY03/14,  which  led  to  a  pretax loss of MYR3.9m during the quarter.   
• 1HFY14 core net profit fell 36% y-o-y  despite an  18% rise in turnover. Turnover rose due to a  22.3% increase in CPO sales volume, but  offset by  a  25%  drop  in  CPO  prices.  However,  net  profit  declined  due  to:  i) higher  phasing-related  upkeep  costs  and  a  higher  proportion  of  young mature areas in Indonesia, which incurred full maintenance costs amid startup low crop yields,  and  (ii) startup costs  relating to  a new CPO mill in Indonesia that is still running at low utilisation rates.
• We  leave  our  forecasts  unchanged.  Our  FY14  estimate  is  13.3% below  consensus’.  We  highlight  that  we  have  not  incorporated  any  EI loss on forex debt in our estimates.
• Maintain SELL.  We maintain our SELL recommendation on the stock, with  an  unchanged  MYR2.46  FV,  based  on  a  P/E  target  of  16x  CY14 earnings.  Despite  the  decent  double-digit  fresh  fruit  bunches  (FFB) production growth projected for the next few years, the still-young fruits would bear higher costs, thus affecting margins.  In addition,  IJMP’s  P/E valuation of  21-22x  CY14 remains relatively high vis-à-vis its peers’ 18-20x.

Financial Exhibits

SWOT Analysis

Company Profile
IJMP  is  a  pure  upstream  palm  oil  plantations  company,  operating  in  Malaysia  and  Indonesi a.  Contributions  from  its  Indonesian plantations are only expected to come in more significantly from FY03/15 onwards.

Recommendation Chart

Source: RHB