Period     4Q13/12M13

Actual vs. Expectations     IJM Corp’s full-year FY13 core net profit of RM431.1m came in within expectations, account for 96% and 94% of ours and consensus estimates respectively. We have excluded provisions amounting RM19.9m for refund of capacity charges and disincentives for Gautami Power. Furthermore, we do not include IJM’s total RM9.0m forex losses in our core earnings. 

Dividends    A single-tier interim dividend of 9 sen was declared, making up the cumulative DPS for FY13 increased to 13 sen from 12 sen in FY12. This translates into a 2.3% dividend yield.

Key Results Highlights   For the full year, IJM’s FY13 bottomline increased marginally by 5%, registering RM451m core net profit from RM429.9m in FY12. This was due to some of the divisions (i.e. infrastructure, plantation) was not performing well in FY13 despite better performance  in construction, property and industry divisions. 

QoQ, despite a marginal increase in topline by 2%, IJM’s 4Q13 core net profit declined by 15% to RM69.1m This was dragged down mainly by a higher effective tax rate of 53% as compared with 26% in 3Q13. Interestingly, despite dip in construction revenue, the division’s pre-tax margin expanded to 10% from 5% in a preceding quarter.

YoY,  IJM Corp’s core net profit fell by 15% to RM89m. The decline was mainly due to the weak profit of its infrastructure and plantation divisions. 

Outlook    External orderbook currently stands at RM2.0b which would provide IJM’s earnings visibility for 2 years. Going forward, it is expected that orderbook will be replenished from 1) WCE (RM4.0b) 2) Kuantan Port expansion (Phase 1: RM1.0b) and 3) high-rise buildings (government job). 

Change to Forecasts     Management guided that WCE will only start works 1 year after the project’s financial close concludes in October 2013. Hence, we adjust our orderbook assumption accordingly as we expect the works to start in FY14 (March 2013 – March 2014). Pursuant to that, our FY14 earnings revised lower by 13%.

Rating  Downgrade to MARKET PERFORM

Since IJM has limited upside already after the share price rally post-GE13 (YTD: +17%), we are downgrading IJM to MARKET PERFORM from OUTPERFORM previously. 

Valuation     Post earnings revision coupled with balance sheet update plus factoring in new fair value of our IJM Land, our Target Price is revised to RM5.90 (from RM6.25 previously) based on SOP valuation.

Risks    Delays in construction projects.

Rising building material costs.

Source: Kenanga