Results

FY14 core PATAMI (adjusted for total EI of RM216.0m) surged by 45% to RM613.6m (42.7 sen/share), exceeding HLIB’s forecast of RM579.6m and consensus RM568.6m.

Deviations

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

Dividends

Announced single tier interim dividend of 11 sen and special dividend of 10 sen. Total dividend for FY14 was 25 sen.

Comments

Results… 4Q revenue climbed by 32% YoY and 7% QoQ to RM1.65bn, driven by property, plantation and infrastructure divisions. Core profits stands at RM96.3m, after excluding EIs of –RM88.1m. For FY14, revenue grew by 29% to RM6.0bn, likewise driven by the above mentioned divisions. After adjusting for EIs, core earnings surged by 45% to RM613.6m (42.7 sen/share).

Construction… Strong order book replenishment from WCE worth RM2.8bn (Current outstanding order book at RM5bn). Tendering for other packages of WCE worth RM2.2bn and Kuantan Mega Port for RM2bn.

Property… Expect continued strong demand for its projects, which focus on mid-range and affordable products. Unbilled property sales of RM2.0bn (1x FY14’s property revenue). Expect FY15 new launches worth RM3-3.5bn.

Plantation… Leveraging on large land bank (newly planted area of 30k ha) in Indonesia for strong production growth by 2017, while domestic production is expected to be flattish.

Industry… Continued to hold steady due to strong concrete piles and aggregate sales for internal and external projects (related to ETP and government mega projects).

Infrastructure… Acquiring SILK tollway (concession ending 31 July 2037) for RM398m cash to fill-up the missing link for its existing tollways Besraya, LEKAS and NPE. Traffic is expected to improve notably for all the tollways, especially after the link from KLORR (2020). IJM indicated the IRR is ~12% (up to 15% with KLORR), while EV/EBITDAR at 22.4x (based on SILK’s FY07/13 EBITDA of RM56m and current debt of RM855m). The next scheduled toll hike is in 2015 to RM1.80 from RM1.30 (currently GoM subsidizing RM0.30), which will improve cash flow (EBITDA) substantially.

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

Raised TP to RM7.09 based on SOP valuation after we incorporate latest share prices of KEuro and Scomi and consensus target target price for IJM Land.

Source: Hong Leong Investment Bank Research - 28 May 2014