Results

• IJM reported 4QFY16 with revenue coming in at RM1.17bn (-19% YoY, -19% QoQ) and core earnings of RM110m (+13% YoY, +28% QoQ). For the full year FY16, core earnings amounted to RM500m, flattish (+2%) YoY.

• Note that our derivation of core earnings excludes forex impact and removes RM302m in disposal gains of the Swarna and Jaipur Mahua highways booked in 1Q and 3Q.

Deviation

• Full year core earnings were within expectations at 100% of our forecast but below consensus at only 81%.

Dividends

• A dividend of 7 sen was declared (special: 3 sen and interim: 4 sen) during the quarter. This brings full year dividends to 10 sen.

Highlights

• Construction riding high. Construction revenue soared 49% YoY but PBT declined 8% due to forex losses in FY16 vs gains last year. For FY16, IJM managed to bag RM940m in new job wins vs a record RM5.7bn in FY15. Thus far into FY17, IJM managed to bag a package of the MRT2 worth RM1.5bn. Its external orderbook remains at a record high of RM8.1bn, translating to a superior cover rat io of 5.7x on FY15 construction revenue.

• Selective on tenders. Given its sizable orderbook, management has been more selective on its tenders. It is bidding for several large scale jobs such as the DASH (RM1bn), SUKE (RM1bn), Pan Borneo (RM1.5bn) and LRT3. Surprisingly, management shared that the tender openings for buildings remain healthy despite the soft property market.

• Property sales weaken further. The property division witnessed -44% and -68% YoY decline in revenue and PBT. Property sales declined to RM1.45bn for FY16 compared to RM1.7bn in FY15 and RM2.2bn in FY14. Management hints of a flattish YoY sales figure for FY17. Current unbilled sales of RM1.7bn, implies a decent cover of 1.4x on FY15 property revenue.

Risks

• Orderbook execution and soft property market.

Forecasts

• No changes to forecast as the earning were inline.

Rating

• Maintain BUY, TP: RM4.05
• We believe IJM is on the verge to witness a strong resurrection in its construction earnings, fuelled by its record high orderbook. Foreign shareholding of 31% also appears to have bottomed out (peak: 45% in June 2014).

Valuation

• Our SOP based TP is raised marginally to RM4.05 (from RM4.04) as we adjust our TP for IJM Plantations (SELL) from RM2.80 to RM2.90.
• The implied P/E at our TP is 22.4x and 19.2x for FY17-18.

Source: Hong Leong Investment Bank Research - 27 May 2016