Period  3Q15/9M15

Actual vs. Expectations  9M15 core net profit of RM457.6m came in within expectations, accounting for 71% and 75% of our and consensus’ full-year estimates, respectively. Note that IJML came in below our estimates while IJMP was broadly within ours, implying that infrastructure and construction divisions performed above expectations.  However, so far, YTD, IJM has already secured RM5.8b worth of new orderbook, far higher than our expectation of only RM4.0b for FY15. Dividends

 None as expected.

Key Results Highlights

 3Q15 net profit rose by 46% QoQ and 53% YoY, respectively, driven by stronger performance in property, plantation and infrastructure divisions. This is despite its lower construction division’s EBIT (-59% QoQ, 61% YoY) that was dragged down by slower billings and margins as some sizeable projects (e.g. Besraya Extension) have already been completed in previous quarters.

 Overall, 9M14 core net profit rose by 7% due to strong performance of its plantation business. Plantation PBT rose by 244% driven by stronger CPO volume as well as its Indonesian operation which has started to break even this year. (see today’s report on IJM Plantation for details).

Outlook  Yesterday, IJM secured a RM1.2b deep water port expansion contract from Kuantan Port Consortium (KPC). Although KPC is 62%-owned by IJM, it is still considered an external job (able book construction profits) given that it is under concession business (similar like Besraya Extension jobs). All in, including this contract, we estimate IJM’s running orderbook to be at a record high of RM7.0b which will last at least for the next five years.

 We reaffirm our view that IJM is in the midst of entering a new phase of growth as most of its major drivers are in “earnings expansion mode” given: (i) a fat construction orderbook of RM7.0b which will provide 5–year earnings visibility, and (ii) the completion of IJM Land’s privatisation exercise which would boost its net profit by another 20% in FY16.

Change to Forecasts  After updating latest IJM’s orderbook lists (from RM6.0b- RM7.0b), we still tweaked lower our FY15-16E earnings by 7.6%-1.9% largely due to trimming of IJML and IJMP earnings.

Rating Maintain OUTPERFORM

Valuation  We advocate investors to accumulate IJM given its deep value, which is backed by its exciting near and long-term growth prospects. For cheaper entry points, investors may want to consider buying IJMLAND to enjoy a 18.0 sen arbitrage opportunity.

 Our SoP-based Target Price is raised slightly higher to RM7.73 from RM7.68 previously to reflect higher valuation of IJMP and IJML (see both report today). Our TP implies 18.1x FY16 PER, which is at higher-end of big-cap contractors’ valuation that ranges from 15-18x.

Risks to Our Call  Lower-than-expected orderbook replenishment, slowerthan- expected construction progress 

Source: Kenanga