Period  3Q14/9M14

Actual vs. Expectations IJM Corp (IJM)’s 9M14 core net profit of RM511.5m came in above expectations, accounting for 84% and 96% of our forecast and consensus estimates, respectively. We derived our core earnings after excluding a one-off item of RM309m, which comprises disposal gains and forex losses/gains.

Dividends  No dividend was declared in 3Q14.

Key Results Highlights YTD, 9M14 core net profit rose by 41% to RM511.5m from RM362.0m in 9M13 thanks to stronger performance across all divisions except plantation. Top performer was property, with the division’s 9M14 pre-tax almost doubled to RM443m from RM231.2m in 9M13.

 QoQ, 3Q14 core net profit went up by 14%, driven by strong performance in all divisions. Interestingly, the plantation division’s 3Q14 EBIT jumped 52% to RM49m due to better CPO prices (+6% to RM2416/MT) and seasonally higher FFB production of 210,772 mt (+17% QoQ). Furthermore, construction EBIT rose significantly by 58% thanks to healthy progress billings for various projects.

Outlook  Finally, the WCE highway project has been fully approved by the government and the concessionaire WCESB can start the construction work. IJM will be the biggest beneficiary for the highway implementation where: (i) the highway will top-up its orderbook at least RM4.0b on its existing RM2.0b, (ii) its 62-% owned subsidiary, IJM Land (OP; TP: RM3.15) is currently developing the new township worth RM11b GDV spanning over 1878ac in the Kota Kemuning area next to the WCE highway, (iii) the highway will keep its industry division busy supplying quarry products and concrete piles to the highway, and (iv) the highway will bring another stream of recurring income in the foreseeable future (estimated to be completed and ready in 2016) to IJM.

Change to Forecasts We revised higher our earnings forecasts for FY14 – FY15 by 7.7% - 5.2% to reflect earnings revision of IJM Plantation and IJM Property as well as higher revenue for our construction division following the better-than-expected progress billings.

Rating Maintain OUTPERFORM

 We are maintaining our OUTPERFORM recommendation on IJM Corp as we believe the current share price has yet to price in the fundamentals.

Valuation  Tweaked higher to RM6.71 from RM6.60 post earnings revision and higher fair value of IJM Plantation.

Risks to Our Call Delays in construction projects, especially WCE, Rising building material costs, and slower-than-expected property sales.

Source: Kenanga