Results

FY13 core earnings (adjusted for RM21.2m unrealised forex losses and RM26.6m disposal gain) slipped by 5% to RM415.5m (30.1 sen/share), missing estimates by making up 83% and 87% of ours and consensus estimates respectively.

Deviations

Due to lower construction earnings, plantation earnings and Gautami Power capacity charges.

Dividends

9 sen/share declared (2Q: 4 sen/share), hence bringing full year dividend to 13 sen/share which is higher than FY12’s, translating to a payout of 43%.

Ex-date on 12 Jun-13, payment on 4 Jul-13.

Highlights

Full year review… Revenue inched up by 3% due to flattish performance in the construction division while the industry and plantation division suffered revenue declines. Despite that, both the construction and industry division posted earnings growth due to margin expansion. Progress billings from the property division grew from strength to strength throughout FY13. Reported earnings posted 3% growth which was in line with revenue growth. However, after adjusting for EI, earnings fell by 5%, mainly due to weak plantation contribution and Gautami Power capacity charges.

West Coast and Kuantan… The RM5bn West Coast Expressway is still awaiting for financial closure and management is hopeful that it can be concluded by Oct-13, with works starting a year later. The RM1.5bn Kuantan port expansion should also start by year end. We are bullish on these two prospects to replenish IJM’s order book.

Kemaman Port… According to news, EPIC has offered RM240m (17 sen/share) to acquire IJM’s 39% stake in Kemaman Port.

Earnings visibility… Outstanding construction order book of RM2.8bn (RM800m comprises of internal orders), translating to 1.3x FY13 construction revenue and property unbilled sales of RM1.8bn, translating to 1.4x FY13 property revenue.

Risks

Execution risk; Regulatory and political risk (both domestic and overseas); Rising raw material prices; Unexpected downturn in the construction, property and plantation cycle; and Sharp fluctuation in forex.

Forecasts

• Slashed FY14 earnings by 5.2% while introducing FY15-16 earnings forecasts.

Rating

BUY

With elections over, IJM will be the prime beneficiary of the RM3.5bn West Coast Expressway and RM1.5bn Kuantan Port expansion plans by virtue of its strategic shareholding in those two concessions. IJM’s share price will be more sensitive to new project wins given its dwindling order book. Meanwhile, the weak CPO prices will be mitigated by FFB growth, while IJM Land will continue to deliver solid results. Hence, we upgrade IJM to a BUY call.

Valuation

• Target Price raised by 20% to RM6.33 from RM5.27 based on SOP valuation

Source: Hong Leong Investment Bank Research - 29 May 2013