Review

• IJMP’s 1HFY17 core profit of RM51.3mn came in broadly in-line with ours and consensus estimates at 43% of our full-year estimates.

• Stripping out the forex and fair value gains on CPO derivatives, 1HFY17 core profit declined by 32.9% YoY from RM76.4mn last year. This was mainly due to higher production and overhead costs in the Indonesian operation as well as higher tax rate. Also, earnings were dragged down by lower FFB production (-7.3% YoY) too.

• Malaysia operations recorded PBT of RM77.8mn as compared to RM49.6mn in 1HFY16. The better performance was mainly driven by higher commodity prices (CPO: +22.9% to RM2,588/tonne), palm kernel oil (+73.7% YoY to RM5,374/tonne) despite lower FFB production (-11.9% to 369k tonnes) due to the lingering effects of El Nino dry weather.

• Indonesia operations recorded a better PBT of RM24.9mn as compared to LBT of RM56.0mn in the previous year. This was mainly due to higher commodity prices (CPO: +25.4% YoY to RM2,411/tonne), palm kernel oil (+84.8% to RM4,452/tonne), coupled with better FFB production (+3.1% YoY to 196.3k tonnes) as a result of increased matured hectarage.

• No dividend has been declared for the quarter under review.

Impact

• No change in our earnings forecast.

Outlook

• Management expects FY17 outlook to be challenging due to i) the uncertainty of El-Nino impact on the overall crop production ii) the uncertain global demand and iii) the volatility in the forex. We expect the Malaysia operations to remain unexciting due to lower FFB production and higher operating costs.

Valuation

• No change in our earnings forecast with maintained TP of RM3.50/share based on CY17 PER of 23x (normalized 5-year average rolling PE).

• While we are positive on IJMP long term growth, we believe upside to the share price in the short-term would be capped by the high production cost and the low FFB production growth. As such, we maintain the stock as SELL.

Source: TA Research - 29 Nov 2016