Period  1Q14

Actual vs. Expectations  IJM Corp’s 1QFY14 core net profit of RM107.8m came in within expectations, accounting for 21% and 26% of ours and consensus estimates respectively. Our core net profit excludes its Trichy Highway’s partial disposal gain of RM56.5m.

Dividends  No dividend declared.

Key Results Highlights  QoQ, both revenue and core net profit increased by 12% and 21%, respectively, thanks mainly to stronger property division performance. The segment’s pre-tax profit climbed by 28% driven by higher revenue and margins from its on-going developments.

 YoY, IJM Corp’s revenue and core net profit rose by 35% and 6% thanks to stronger performance across all the divisions. Nonetheless, the pre-tax margin of its construction division’s eroded by 1% to 7% in 1Q12 mainly due to lower JV contribution and higher forex losses arising from a weakening Indian Rupee.

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

Change to Forecasts  We tweaked our earnings forecasts by 3% - 1% for FY14-FY15 to reflect our earnings revision on IJM PLANT. We revised IJM PLANT’s numbers after we assume lower CY14E CPO prices of RM2400/mt (from RM2500/mt) and higher cost for the Group.

Rating   Maintain OUTPERFORM

 We are maintaining OUTPERFORM on IJM Corp as we believe IJM’s current share price has yet to price in the full value of its WCE concession given the fact that the financing of the project is materialising.

Valuation  We have adjusted our TP to RM6.51 (from RM6.63 previously) to reflect our IJM Plantation revised fair value (from RM3.38 to RM3.00). Our TP is based on SOTP-derived valuation.

Risks  Scrapping of WCE projects.

 Rising building material costs.

Source: Kenanga