IJM Plantations - 87.6% QoQ increase in net profit in 2QFY13 BUY

- Affirm BUY on IJM Plantations Bhd (IJMP) with a lower fair value of RM3.40/share. Our fair value is based on a PE of 16x on IJMP’s FY14F basic EPS.

- IJMP’s 1HFY13 results were weaker than our forecast and consensus estimates due to falls in CPO prices and production. 

- In spite of an 87.6% QoQ recovery in net profit in 2QFY13, we have reduced IJMP’s FY13F earnings forecast to reflect the decline in CPO prices in 4Q2012.  

- Like Genting Plantations, the QoQ improvement in IJMP’s profitability in 2QFY13 was driven by a rebound in FFB production. 

- The group’s FFB output in Malaysia surged 52% from 106,620 tonnes in 1QFY13 to 162,031 tonnes in 2QFY13. IJMP’s FFB production in Indonesia inched up by only 1.5% QoQ to 8,735 tonnes in 2QFY13. 

- Due to the QoQ recovery in FFB production in Malaysia in 2QFY13, we believe that IJMP’s production cost per tonne declined. EBIT margin climbed from 26.9% in 1QFY13 to 40.7% in 2QFY13. 

- IJMP’s average CPO price realised shrank 9.1% from RM3,192/tonne in 1QFY13 to RM2,903/tonne in 2QFY13.

- Comparing 1HFY13 against 1HFY12, IJMP’s net profit fell 34.7% to RM63mil due to lower palm oil production and prices. Production costs also increased on the back of higher fertiliser and wages expenses.  

- IJMP’s FFB production in Malaysia slid 25.3% YoY to 268,651 tonnes in 1HFY13. 

- However, average CPO price realised only inched down 1.1% from RM3,057/tonne in 1HFY12 to RM3,024/tonne in 1HFY13. 

- IJMP’s oil palm estates in Indonesia produced 51.9% more FFB in 1HFY13 versus 1HFY12. 

- The group is on track towards producing about 40,000 tonnes of FFB in Indonesia in FY13F. IJMP’s FFB production in Indonesia amounted to 17,345 tonnes in 1HFY13.   

Source: AmeSecurities