Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit (CNP) of RM488.6m came in below expectations, accounting for 86% and 90% of our and consensus’ full-year estimates, respectively. The negative variance was due to: (i) lower-thanexpected property margins and (ii) we removed the minority interest portion from IJM Land prematurely as we had earlier expected IJM to complete the IJML’s privatisation before end of FY15. The privatisation was actually completed in April 2015.

Dividends

As expected, IJM declared 11.0 sen final interim dividend. Cumulatively, the group has declared 15.0 sen DPS in FY15.

Key Results Highlights

4Q15 CNP down by 26% QoQ and 14% YoY due to poor performance of plantation (kindly see IJMP’s report today) and infrastructure divisions. On a positive note, construction division’s PBT jumped 263% QoQ thanks to higher construction progress and margins.

Overall, FY15 core net profit fell by 10% due to weak plantation, property and infrastructure divisions. As for construction division, the segment’s EBIT jumped to 19% from 9% in FY14 mainly attributed to the finalization of accounts of some projects. Meanwhile, as for infrastructure division, the segment’s PBT declined significantly by 78% due to higher financing and amortization costs following the commencement of full operations at Besraya Extension.

Outlook

Proposed 1:1 bonus issue. IJM also announced yesterday that it proposes to undertake bonus issue up to 1.8b bonus shares, on the basis of 1 bonus share for every 1 existing share. (refer overleaf)

Despite below-than-expected FY15 earnings, we reaffirm our view that IJM is in the midst of entering a new phase of growth as most of its major earnings drivers are in “expansion mode”. Firstly, the group has secured RM5.9b new orderbook in FY15, which boosted its total outstanding orderbook to RM7.0b currently. This will provide five years of earnings visibility. Secondly, IJM had completed the IJM Land’s privatisation exercise last month. We forecast that the privatization will boost its net profit by 20% in FY16.

Change to Forecasts

We revised FY16E earnings by -2.7% after we lowered our FY16 property sales forecast to RM1.8b from RM2.0b previously in view of flat property sales growth. We also introduce FY17E core net profit of RM769.7m, representing growth of 6.0%.

Rating

Maintain OUTPERFORM

Valuation

Tweaked our SoP-based TP to RM7.95 from RM7.93 after factoring in higher fair value for IJMP. Our TP implies 18.6x FY16E PER, which is at the higher-end of big-cap contractors’ valuation that ranges from 16- 18x.

Risks to Our Call

Lower-than-expected new contracts, slower-thanexpected construction progress and margins, lowerthan- expected property sales

Source: Kenanga Research - 27 May 2015