IJM Plantations - Expecting lower 1QFY10 results

1QFY10 results likely to be lower qoq and yoy, due to lower CPO ASP. Sell into strength; expect the share price to retreat due to weakness in CPO prices. Maintain SELL, fair price of RM2.55 based on 15x FY10 PE.

Substantially lower yoy. Yoy, 1QFY09 net profit contraction can be as high as -60% due to : a) lower CPO average selling price (ASP) (estimated: -32% yoy) , b) an estimated 9% yoy fall in production and c) higher operating cost as fertiliser cost has risen by an estimated 11% yoy.

Qoq mitigated by higher production, but still be affected by higher cost. On a qoq basis, 1QFY09’s lower CPO ASP should be partially mitigated by higher production. However, due to slightly higher operating cost (fertiliser application only started in CY2Q), we expect net profit to still be slightly lower compared to RM8.5m in 4QFY09.

Production picking up but still slow. Fresh fruit bunches (FFB) production has started to pick up as shown by the qoq growth, but still slower than expected. Heavy rainfall in 1Q09 had actually affected the formation of FFB and lowered OER. For FY10, we expect a production growth of only 4.9% vs 5.8% for FY09.

Earnings forecasts maintained as we expect higher production to come onstream in late-2QFY10 and 3QFY10. Maintain SELL, fair price of RM2.55 based on 15x FY10 EPS. Sell into strength; expect the share price to retreat due to weakness in CPO prices amid concerns of high inventories (see our sector report dated 23 Jul 09 “Cloudy Outlook On Shockingly High Inventory”). Post-rights issue, IJMP’s target price is RM1.90 based on 15x diluted FY10 EPS of 12.7sen.