Period  2QFY14/1HFY14

Actual vs. Expectations IJM Corp (IJM)’s 1H14 core net profit of RM306.2m came in within expectations, accounting for 50% and 52% of ours and consensus estimates, respectively. We derived our core earnings after excluding its accumulated forex losses of RM58m and its Trichy highway’s net disposal gain of RM56.5m in 1Q13.

Dividends  As expected, an interim dividend of 4 sen was declared.

Key Results Highlights YTD, IJM’s 1H14 core net profit rose by 29% to RM306.2m from RM223.3m in 1H13 thanks to stronger performance in its property, industry and infrastructure divisions.

 QoQ, 2Q14 went up by 33%, despite the weaker plantation division which was affected by higher fixed maintenance and overhead costs. Stronger performance in 2Q14 was mainly supported by IJM’s construction arm following improved construction progress in various local projects coupled with higher property margins.

 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  WCE’s financial closure extended to 1st January 2014. Management updated during the analysts’ briefing yesterday that the financial closure of the much-awaited WCE had been extended to 1st January 2014 from October 2013 due to some minor additional information required by the government. We concur with the management that the project will take off in 2014 once the financial closure is concluded as this project has been announced in the Budget 2014.

 Total outstanding orderbook currently stands at RM2.5b, of which internal jobs make up c.30% or RM750m and the remaining RM1.75b is from local (RM1.73b) and overseas (RM21m). Going forward, it is expected that orderbook will be replenished from: (i) WCE (RM4.0b), (ii) Kuantan Port expansion (Phase 1: RM1.0b), and (iii) local highway projects (SUKE, Kidex), and (iv) RAPID Petronas civil works (water treatment plants).

Change to Forecasts While maintaining our FY15 earnings forecasts, we revise our earnings estimates by -2% to reflect IJM Plant’s earnings revision.

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  Tweaked higher to RM6.60 from RM6.51 after we i) rolled over our valuation parameter to FY15E, ii) reflects IJM Plant (MP; TP: RM3.25) and IJM Land (OP; TP: RM3.15) new fair valuation.

Risks to Our Call Delays in construction projects, especially WCE, Rising building material costs.

Source: Kenanga