Results

1QFY14 core earnings (adjusted for RM29m forex loss and RM57m disposal gain) grew by 38% YoY to RM137m (9.83 sen/share), meeting both ours (25.5%) and consensus forecasts (25.3%).

Deviations

In line.

Dividends

None. Dividends usually declared in 2Q and 4Q.

Highlights

Results… Revenue grew by 35% YoY and 12% QoQ to RM1.4bn, mainly due to stronger activities in construction and property divisions. 1QFY14 saw EI of RM29m forex loss and RM57m disposal gain. Hence, core earnings grew by 38% YoY and 98% QoQ. The strong growth from the latter was due to weak performance in 4QFY13.

Construction… Revenue grew by 12% YoY to RM418m, but PBT slumped by 80% to RM5.6m, translating to a PBT margin of 1.3%. This was partially affected by forex loss of RM10m and timing in profit recognition. As of 1QFY14, outstanding external order book stood at ~RM1.7bn, translating to ~0.86x FY13’s construction revenue.

Property… Achieved highest ever quarterly revenue of RM465m with PBT of RM118m. Secured new property sales of RM500m (full year target of >RM2bn) during the quarter, derived largely from Rimbayu and Seremban 2. Unbilled property sales stood at ~RM1.4bn, translating to ~1x FY13’s property revenue.

Industry… Achieved another strong set of results, with revenue growing by 31% to RM246m with PBT of RM44m, driven by better concrete piles and aggregate sales.

Plantation… Although revenue grew by 23% YoY to RM135m, PBT slumped by 90% to RM3m. Although FFB growth mitigated the lower palm product prices, higher overall expenses hit its plantation earnings.

Infrastructure… Continued to see healthy revenue growth in its local port and local highway division. Earnings was affected by unrealised forex loss of RM20m, which was mitigated by RM57m Trichy Highway disposal gain.

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

Unchanged.

Rating

BUY

Positive: (1) Higher upwards price sensitivity towards new contract wins; (2) Strategic shareholding in WCE and Kuantan Port to clinch projects; (3) Recovery in construction margin; (4) Robust contribution from IJM Land; (5) FFB growth to mitigate weak CPO prices.

Negatives: (1) Delays in securing sizable contracts; (2) Continued deterioration in CPO prices; (3) Slower than expected take-up rates for its property launches.

Valuation

TP tweaked slightly lower by 0.2% to RM6.32 from RM6.33 based on SOP valuation (see Figure #3) due to fluctuations in valuations for IJM Land and IJM Plantations.

Source: Hong Leong Investment Bank Research - 28 Aug 2013