Results

1HFY14 core PATAMI (adjusted for RM50.4m forex loss and RM56.5m disposal gain) grew by 38% to RM298.6m (21.40 sen/share), exceeding both ours and consensus forecasts slightly by making up 56% of full year forecasts.

Deviations

Largely in line.

Dividends

4 sen/share declared, matching 2QFY13’s payout. Ex-date on 11 Dec-13 and payment date on 24 Dec-13.

Highlights

Results … 1H revenue grew by 29% to RM2.8bn, buoyed by strong topline growth in all divisions. The appreciation of the US$ has resulted in unrealised forex loss of RM50.4m, mainly in the plantation and infra division. Despite losses in the plantation division, group core PATAMI actually grew by 38% to RM298.6m, lifted mainly by strong property contribution.

Construction… Posted strong construction revenue of RM492.4m in 2Q with PBT of RM31.7m and margin recovering to 6.4%. Management now expects WCE to achieve financial closure by early Jan-14 from the initial deadline of Oct-13. With potential contracts from WCE (worth RM3.5bn) and Kuantan Port expansion (RM1bn), IJM’s order book replenishment prospects remain bright. External outstanding order book stood at ~RM1.7bn, translating to 1.1x FY13’s construction revenue.

Property… Another strong contribution by the property division in 2Q, posting revenue of RM429.0m and PBT of RM125.4m. Achieved new property sales of RM750m in 2Q (1Q: RM500m), hence bringing 1HFY14 new sales to RM1.25bn. Its maiden London project – Royal Mint Gardens, which has a GDV of £200m (51% stake), has achieved a take-up rate of 90%. Management believes that with the right location and pricing strategy, impact from tightening measures will not be much as demand is still strong. Unbilled property sales stood at RM2bn (including JV sales), translating to 1.5x FY13’s property revenue.

Plantation… Posted higher revenue of RM149.2m in 2Q, whereby higher CPO and PKO sales volume offset the decline in palm product prices. However, posted LBT of RM3.9m, which was dragged down by higher expenses for its newly matured plantations in Indonesia and forex losses of RM29.4m.

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 help 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 maintained at RM6.32 based on SOP valuation (see Figure #5).

Source: Hong Leong Investment Bank Research- 27 Nov 2013