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Tuesday, November 29, 2016

Brokers Report: IJM Plantations - 2Q17 Within Expectations

Maintain PERFORM with unchanged target price (TP) of RM3.60

1H17 CNP at RM55m was within expectations at 46% of both consensus? RM118m and our RM119m forecasts. No dividend was declared, as expected. We maintain our FY17-18E CNP forecasts at RM119-142m. No change to our MARKET PERFORM call and TP of RM3.60.

2Q17 meets expectations. 
IJM Plantations Berhad (IJMPLNT) 1H17 CNP at RM55m came in within expectations at 46% of both consensus? RM118m forecast and our expected RM119m. Group production at 424.1k MT was within our expectations as well, at 47% of full-year forecast. No dividend was announced, as expected.

Price improvement. 
YoY, CNP rose 21% on flat FFB volume, driven by large increases in CPO prices in Malaysia (+23%), Indonesia (25%) and a sharp jump in PK prices (+74%) due to tight supply and rising demand for palm kernel oil as a coconut oil alternative. This led to a 57% improvement in Malaysian operations PBT, and a reversal in Indonesia PBT to RM25m, from a LBT of RM56m previously. QoQ, CNP jumped 76% as Malaysian PBT rose 1.7x on a volume jump of 43%, but Indonesian PBT weakened 59% due to softer volume (-6% to 79.5k MT) arising from lagged drought impact, and flat CPO prices.

Stabilising earnings. 
Looking ahead, we think IJMPLNT should see stable earnings in the coming quarters as CPO prices have steadily improved with 3QFY17 quarter-to-date (QTD) improvement of 6% and 29% YoY. This should offset IJMPLNT?s historically weaker production in late 3Q and 4Q17 as production hits off-peak season. Note that net profit could see some volatility with the weaker ringgit, with the possibility of erasing year-to-date forex gains of RM14.8m. However, net impact will be neutral as forex movements are excluded from our core net profit calculations.

FY17-18E CNP maintained at RMM119-142m as 1H17 CNP is in line with our forecast.
Maintain MARKET PERFORM with unchanged TP of RM3.60. We maintain our TP at RM3.60 based on unchanged 23.5x Fwd. PER applied to CY17E EPS of 15.3 sen. Our Fwd. PER of 23.5x is based on +0.5SD valuation which we think is justified by IJMPLNT?s FY17-18E above-average FFB growth of 6-12% compared to the sector average CY16-17E growth of -2% and 10%. We continue to have a MARKET PERFORM call on IJMPLNT as slightly softer near-term production is offset by supportive CPO prices.

Source: Kenanga Research - 29 November 2016

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