1HFY16 results were below expectations, hit by the effects of drought in Sabah, which saw a 9.2% YoY decline in FFB production. Maintain BUY, with a lowered MYR3.90 TP (from MYR4.05, 13% upside). Its high sensitivity to CPO price movements would result in a strong surge once CPO prices start trending upwards. As one of the first to suffer the effects of the drought, it could also be one of the first to recover.

Below expectations. IJM Plantations’ (IJMP) 1HFY16 (Mar) core net profit was below our and consensus expectations, at 42-46% of FY16 forecasts. This was due mainly to lower-than-expected FFB production decline of 4% YoY in 2QFY16, bringing 1HFY16 FFB production to a flat +0.4% (vs our original forecast of +7.5%) for FY16. The continued dry weather in Sabah was the culprit, which resulted in a 9.2% YoY decline in FFB production in 1HFY16. IJMP’s Indonesian estates were also affected, albeit not as badly, as production rose 24% YoY in 1HFY16, lower than management’s previous projections of +50% for FY16. In 2QFY16, the company recorded a MYR45.9m unrealised forex loss on debt, bringing 1H EI loss to MYR51.7m.

1HFY16 core net profit fell 2% YoY on the back of a 18% YoY drop in revenue. The revenue decline was due to a 12% drop in CPO prices, offset by a 0.4% rise in FFB production. Unit production costs fell by an estimated 8% YoY in 1HFY16, likely due to lower fertilising activities done during the 1Q as a result of unsuitable weather conditions. Management has reduced its FFB growth target for FY16 to a low singledigit growth (from the 8-9% guided in early-Oct).

Lowered forecasts. We lower our earnings forecasts for FY16-18 by 10-11%, after reducing our FFB growth assumptions for FY16 to 5% (from 7.5%) and for FY17-18 to 7-10% (from 9-11% previously), takinginto account an even greater impact of El Nino on productivity. Our TP is, thus, lowered to MYR3.90. We highlight that every MYR100/tonne change in the price of CPO could affect IJMP’s earnings by 5-7%.

We maintain our BUY recommendation on the stock, as valuations of 15x 2016 are still at attractive levels (vs its five year P/E band of 13-30x)for this well-managed company with decent growth prospects.