Review

• Stripping out exceptional items, IJMP’s reported a core net loss of RM8.7mn in 1QFY20 compared to a profit of RM10.4mn recorded last year. The net loss was attributed mainly to lower palm oil prices and sales volume. We deemed the results broadly in line as we are expecting stronger quarters ahead.

• The operation in Malaysia recorded a lower PBT of RM2.4mn in 1QFY20 (-75.6% YoY) on the back of lower revenue (-27.3% YoY). The weak performance was mainly dragged by lower commodity price and FFB production as well as higher production cost (due to the nationwide minimum wage). FFB production increased by 20.2% to 103.9k tonnes. The average CPO price was lower at RM1,921/tonne in 1QFY20 (-19.8% YoY). Meanwhile, the palm kernel oil price also dropped by 37.3% to RM2,220/tonne.

• Indonesia recorded FFB production drop of 5.1% YoY to 128k tonnes in 1QFY20. Revenue decreased by 18.0% YoY to RM67.71mn as a result of low commodity price. A lower LBT of RM7.8mn was recorded compared to a LBT of RM31.9mn in the previous year. The losses were mainly attributable to higher finance costs. The average CPO price declined by 13.9% YoY to RM1,821/tonne while the palm kernel oil price also plunged by 33.4% to RM2,343/tonne.

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

Impact

• No change to our earnings forecasts

Outlook

• Management expects FFB production to exceed 1mn tonnes in FY20, underpinned by an increase in planted areas in Indonesia reaching maturity and yield recovery in both Malaysia and Indonesia’s estates from the effects of El-Nino.

• Despite higher FFB production, management remains cautious on FY20 outlook due to prevailing low commodity prices, higher cost pressure arising mainly from wage increases and the volatility of the foreign exchange rates, particularly the weak Rupiah against the USD and Japanese Yen.

Valuation

• Maintain IJMP's TP at RM1.27, based on CY20 PER of 24x. Reiterate our SELL recommendation.

Source: TA Research - 29 Aug 2019