Results

9MFY14 core PATAMI (adjusted for total EI of RM324.3.4m) surged by 40% to RM497.1m (35.5 sen/share), exceeding ours/consensus estimates by making up 93%/94% of full year forecasts.

Deviations

Mainly due to stronger than expected earnings contribution from the construction and property divisions.

Dividends

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

Comments

Results… 3Q revenue climbed by 26% YoY and 9% QoQ to RM1.54bn. Revenue growth was driven by construction, property and plantation divisions. EI for the quarter totalled RM318m, mainly from the disposal gain of Kemaman Port and revaluation gain of Swarna Tollway. 3Q core earnings grew by 43% YoY and 22% QoQ to RM199m (14.1 sen/share). For 9MFY13, revenue grew by 28% to RM4.36bn, likewise driven by the above mentioned divisions. After adjusting for EI, core earnings surged by 40% to RM497.1m (35.5 sen/share).

Construction benefits the most… Surprisingly strong 3Q with PBT margin touching 9.7%. External order book of RM1.3bn (RM700m internal), translating to 0.8x FY13’s construction revenue. WCE is expected to take-off by Jun-14 and will be a sizable replenishment for the division.

Property… Continued to show robust earnings despite RM80.5m disposal gain of Kemaman Port-related properties. Achieved new property sales of RM550m in 3Q, bringing 9MFY14 new sales to RM1.8bn. Unbilled property sales of RM2.0bn, translating to 1.5x FY13’s property revenue.

Plantation… Achieved strong revenue growth in 3Q, buoyed by stronger FFB output in Indonesia. Posted stronger 3Q PBT performance after negligible earnings in 1HFY14. However, 9MFY13 plantation earnings are still markedly lower compared to a year ago.

Industry and infrastructure… Continued to hold steady due to strong concrete piles and aggregate sales coupled with contribution from Kuantan Port and increased traffic growth.

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

FY14/15/16 earnings raised by 8.1%/4.4%/0.9%.

Rating

BUY

Positives: (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 raised by 3.3% to RM6.79 from RM6.57 previously based on SOP valuation (see Figure #4).

Source: Hong Leong Investment Bank Research - 28 Feb 2014