Results

• 3QFY15 saw revenue of RM1.3bn (-13% YoY, +4% QoQ) and PATMI of RM138m (+18% YoY, +24% QoQ).

• Cumulative 9M PATMI amounted to RM383m (-53% YoY). After stripping off RM457m in EI (disposal gains from infra assets) from last year, core PATMI growth came in at +5%.

Deviation

• 9M PATMI was within expectations at 72% of our full year forecast but below consensus at only 63%.

Dividends

• None for the quarter. Expected in 4Q.

Highlights

• Improved construction margins. Despite construction revenue plunging 51% YoY for the 9M period, PBT rose 30%. While the completion of older jobs was not replaced by the commencement of newer ones due to timing differences, higher margins were reaped on those newer jobs that did actually take off.

• Orderbook scales a new high. The past 2 years have been lull for job wins where IJM only managed to secure RM238m for FY14 and nil for FY13. This year however, IJM managed to secure a stellar RM5.7bn in new jobs (including the RM2.8bn West Coast Expressway (WCE). This brings its orderbook to an all-time high of RM6.8bn, implying a strong cover of 4x FY14 construction revenue.

• Privatisation approved. 9M property revenue was up 10% YoY driven by higher sales and construction progress on its ongoing developments. PBT however remained flat (+1%) due to the high base last year resulting from one off subsidiary disposal gains. The privatisation of IJM Land, in which shareholders have approved, is expected to be completed in April. This will see 11 months of FY16 plugging the MI leakage from IJM Land and enhancing earnings. We estimate that the privatisation is EPS enhancing by 3%.

Risks

• Execution is an avenue to watch out for given the sudden boost to IJM’s orderbook.

Forecasts

• No changes as the results were inline. While FY15 earnings growth may be pedestal at 6%, we envision this to accelerate to 33% in FY16 and 10% in FY17 once it starts executing its sizable orderbook and the MI leakage from IJM Land is plugged.

Rating

BUY, TP: RM7.92

• We believe the key earnings catalysts for IJM are all in the right places. Maintain BUY.

Valuation

• Our SOP based TP of RM7.92 implies FY15 P/E of 22.4x but a more palatable 16.8x on FY16 once the key earnings drivers start to crystallise.
• A cheaper entry to IJM will be via IJM Land which comes at a 3.1% discount (Figure #4).

Source: Hong Leong Investment Bank Research - 2 Mar 2015