Results

• 2QFY16 results came in with revenue of RM1.34bn (+4% YoY, +13% QoQ) and core earnings of RM163.6m (+37% YoY, +16% QoQ).

• For the cumulative 1H period, core earnings amounted to RM304.7m, an increase of 17% YoY. In deriving core earnings we have removed the gain on disposal of Jaipur Mahua Tollway amounting to RM168.7m (recorded in 1Q).

Deviation

• 1H core earnings made up 52% of our full year forecast which is within expectations. The numbers were however, below consensus at only 44%.

Dividends

• DPS of 3 sen was declared vs. 2 sen (after adjusted for the 1-for-1 bonus issue) in the same period last year.

Highlights

• Construction gaining traction. Construction revenue in 1H increased 13% YoY, reflecting the execution of its all-time high orderbook of RM7bn. This implies a superior cover ratio of 7.8x on FY15 construction revenue. Recognition is set to accelerate further in 2016 once major jobs such as the WCE and Deepwater Terminal cross the 10% completion mark. Despite its record orderbook, IJM is still eyeing new jobs such as the MRT Line 2, SUKE, DUKE, LRT3 and other private sector development jobs.

• Tough on the property side. IJM recorded RM650m in property sales for 1H vs. RM700m in the same period last year. In view of the soft market conditions, IJM has shifted its launch focus towards more affordable homes. 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 the thin cover, it is inevitable that property earnings will stage a decline this year. As it is, property revenue and PBT for 1H fell 41-42% YoY.

• Infra and industries partially offset by plantations. The positive results of the industries (higher demand from export market) and infra (Kuantan Port experiencing robust throughput) was partially offset by plantation losses.

Risks

• Orderbook execution and soft property market.

Forecasts

• No changes as the results were inline.

Rating

• BUY , TP: RM3.92
• 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

• Our SOP based TP is cut from RM3.92 to RM3.86 following our TP cut for IJM Plantatons. This implies FY16-17 P/E of 23.6x and 20x respectively.

Source: Hong Leong Investment Bank Research - 25 Nov 2015