IJM Plantations - Slow recovery from tree stress

Period      2Q13 and 6M13

Actual vs. Expectations      IJMP’s 6M13 core net profit of RM69m* came in below both consensus and our estimates. It made up 45% of the consensus’ FY13 forecast of RM153m and 41% of our forecast of RM167m. 

6M13 FFB production was below expectation as the FFB volume of 285,996 mt made up only 43% of our FY13E estimate of 668,073 mt. This could be possibly due to  the trees’ slower than expected recovery from stress in the Sabah estates. Note that IJMP’s oil palm trees in Sabah are generally mature with an estimated age of ~14 years old. That said, the overall group’s age profile is still healthy at ~8.5 years old.

Dividends     No dividend was announced as expected.

Key Results Highlights       YoY, the 6M13 core net profit declined by 28% to RM69m as the FFB volume tumbled 23% to 285,996 mt and the average CPO price flat at RM3,024/mt (-1%). Cost of production is estimated to have increased by 10% due to higher wage and fertiliser costs.

QoQ, the 2Q13 core net profit jumped 48% to RM41m  as  the  impact  of  the  FFB  volume  jump (+48% to 170,766 mt) outpaced that of lower CPO prices (-9% to RM2,903/mt).

Outlook      FY13E  core  net  profit  is  poised  to  decline  more than 20% YoY due to the expected lower CPO price of RM2850/mt (-7% YoY), lower FFB production of 645,176 mt (-4% YoY) and possibly higher cost of production by at least 10%.

Change to Forecasts    Slash FY13E-FY14E core net profits by 19%-12% to RM135m-RM157m after assuming lower avg. CPO price of RM2850/mt (from RM3000/mt) for both years. FY13E-FY14E FFB yield has been lowered by 3%-1% to 20.5mt/ha-18.2mt/ha.

Rating  Downgrade to UNDERPERFORM

Expected consensus earnings downgrade and possibility of another disappointment in 3Q13 result should pressure share price. So far, avg.

CPO price has been weak so far at RM2266/mt (-21% lower QoQ).

Valuation       Cut our TP to RM2.70 (from RM3.35 previously) based on an unchanged Fwd. PER of 16.0x to the lower FY13E EPS of 16.8 sen (from 20.9 sen).

Risks     Better than expected CPO prices.  

Source: Kenanga