Results

• 1QFY16 results came in with revenue of RM1.18bn (-14% YoY, -18% QoQ) and core earnings of RM141.2m (0% YoY, +45% QoQ). In deriving core earnings, we have removed RM27m in forex gains and RM168.7m in disposal gains from the Jaipur Mahua Tollway.

Deviation

• 1Q core earnings made up 22% of our full year forecast (19% of consensus) which we deem below expectations.

Dividends

• No dividend was declared. Usually in 2Q and 4Q.

Highlights

• Slowly but surely. Construction revenue declined 25% YoY and 14% QoQ largely due to timing differences between the completion of its older jobs and commencement of its newly secured ones. We are unfazed by this as we expect momentum to pick up in the coming quarters once IJM beings to run down its all-time high orderbook, estimated at RM6.4bn. This translates to an exceptionally strong cover ratio of 7.2x on FY14 construction revenue.

• Challenging property outlook. IJM recorded RM300m in property sales for 1Q, down 33% YoY. We assume RM1.3bn in sales for FY16 vs RM1.8bn last year. Its unbilled sales stands at RM1.7bn, implying a 0.8x cover on FY15 property revenue. Given such a thin cover, it is inevitable that property earnings will stage a decline this year. Property revenue for 1Q fell 40% YoY and 52% QoQ while PBT was down 57% YoY and 61% QoQ.

• Other divisions. Industries revenue grew 12% YoY and 25% QoQ while PBT on the other hand was up 10% YoY and 35% QoQ. This was driven by higher tonnage of piles delivered which grew 34% YoY. Infra revenue and PBT grew 49% and 106% YoY on back of higher traffic volume at its tolls and increased cargo throughput for Kuantan Port.

Risks

• Execution is an avenue to watch out for given the significant increase in IJM’s orderbook.

Forecasts

• We cut FY16-17 earnings by 10% and 6% respectively as we take a more conservative stance on its orderbook recognition.

Rating

BUY , TP: RM7.84

• We believe the key earnings catalysts for IJM are all in the right places. Earnings growth for its construction division is imminent given the sizable orderbook that it sits on. Whilst the property outlook appears subdued, this is somewhat offset by the privatisation of IJM Land which should help clog the MI leakage from this year onwards.

Valuation

• Following our earnings cut, our SOP based TP is reduced from RM8.00 to RM7.84, translating to an implied FY16-17 P/E of 24x and 20x respectively.

Source: Hong Leong Investment Bank Research - 26 Aug 2015