- We maintain our BUY call on IJM Corp with an unchanged fair value of RM4.10/share (10% discount to NAV). IJM reported a 1QFY16 core net profit of RM189mil (+12% QoQ), bringing 1HFY16 net profit to RM358mil. At half time, the robust 44% YoY jump in core earnings was largely attributable to higher contributions from the infrastructure and industries divisions.

- This accounted for c.57% of our core FY16F net profit forecast of RM623mil. We however, maintain our estimates for now on expectations of a slight slowdown in the 2H, on (i) slower property sales; and (ii) a moderation in the port divisions’ earnings.

- Along with the infrastructure division, the industries division was a star performer (1HFY16 earnings up 13% YoY) due to higher sales of piles (exports: ~15%). The current utilisation rate for its plants are between 80% and 90% with a monthly average production of 150k tonnes (peak: 190k tonnes). We understand that potential requirements from the Kuantan New Deep Water Terminal (NDWT) and West Coast Expressway could reach 200 mil tonnes and 60 mil-70 mil tonnes respectively.

- Excluding a gain on the sale of a 74% stake in the Jaipur Mahua Tollway (RM169mil) and forex movements, we estimate core infrastructure earnings to have jumped 5.4x to RM203mil. Notably, Kuantan Port contributed pre-tax profits of RM147mil in 1HFY16 – already matching FY15’s total. Cargo volumes surged to 23 million tonnes (FY15: ~20 million tonnes), although traffic is expected to moderate slightly in 2HFY16 during the monsoon period.

- Property earnings fell 41% YoY on the back of a slower property market and the completion of certain key projects (unbilled sales: RM1.7bil). 1HFY16 new sales were marginally lower at RM650mil (1QFY16 - RM300mil; 23QFY16 – RM350mil) vs over RM700mil a year ago.

- Construction earnings fell 13% as margins normalised to 14% from 19% a year ago (2QFY16: 12%) following the completion of certain key projects during the quarters. But, we expect a re-acceleration of construction earnings towards the later part of 2HFY17 when progress from its newer projects starts to gain traction. Notably, the weight of recognition for the WCE) and the NDWT would be more pronounced once physical progress for both projects cross the 10% market as projected by early 2016.

- With a sizeable orderbook of RM7bil, IJM’s orderbook prospects remain bright moving into the 11th Malaysia Plan period. Apart from the upcoming LRT Line 3 and MRT 2 works, IJM could be in the picture for the SUKE/DASH highways, Pan Borneo Expressway, balance of works for the NDWT & WCE as well as select in-house jobs (e.g. Phase 2 of The Lights).

Source: AmeSecurities Research - 25 Nov 2015