Period  1Q15

Actual vs. Expectations IJM Corp’s 1Q15 core net profit of RM140.7m came in within expectations, accounting for 20% and 21% of our and consensus full-year estimates, respectively. Our core net profit excludes the net forex losses of RM7.3m.

Dividends  None as expected.

Key Results Highlights QoQ, revenue declined by 17% mainly due to slower progress billings in construction and property division. As for construction division, certain projects have already been completed in the previous financial year. As for property division, 1Q15 revenue fell by 30% because of the previous quarter’s high base effect (see IJM Land report today). Nevertheless, IJM’s 1Q15 net profit was up 25% boosted by lower finance costs (-35%).

 YoY, 1Q15 revenue was flat, i.e. down 2% mainly due to lower revenue recognition from its construction division. Nonetheless, the group’s net profit increased slightly by 7% mainly attributed to higher margins in construction division. Construction pre-tax margins recovered strongly to 16% from 1% in 1Q14 driven by some high margin projects, which reached the tail-end of their completion stage.

Outlook  IJM Corp is in the midst of entering into a new phase of growth as almost all of its businesses are in the “earnings expansion mode” due to the following factors; (i) it has a fat construction orderbook of RM5.0b which will provide earnings visibility at least for the next four years, (ii) it is in the midst of completing the IJM Land’s privatisation exercise (3Q15) which would then boost its PATAMI by another 20% in FY16, (iii) IJM is also in the midst of acquiring SILK highway, which will enhance its recurring income in the medium-term as the highway is due for a toll hike in 2015.

Change to Forecasts Maintained.

Rating Maintain OUTPERFORM

 We advocate investors to accumulate IJM given its deep value backed by its exciting near and longterm growth prospects.

Valuation  Reaffirm our SoTP-driven Target Price of RM7.57. This implies fwd-PER of 15.6x FY15EPS, in line with its historical 5-year PER range of 15-17x.

Risks to Our Call   Lower-than-expected orderbook replenishment

 Slower-than-expected construction progress

 Higher-than-expected input costs.

 Lower-than-expected property sales

Source: Kenanga