Period

1Q16

Actual vs. Expectations

1Q16 core net profit (CNP) of RM141.2m, came in disappointingly, which accounts for 19% of both our and consensus full-year estimates. The letdown was mainly due to lower-than-expected contribution from its property division.

Dividends

No dividends declared for the quarter as expected.

Key Results Highlights

YoY, IJM’s 1Q16 net profit soared by 153% to RM336.9m despite a 14% decline in revenue, mainly driven by an one-off gain of RM168.7m arising from the disposal of 74% equity interest in Jaipur Mahua Tollway Private Limited. Stripping of the one-off gain from the disposal, its core net profit would have remained flattish at RM141.2m, which was lifted by lower contribution to minority interests (-35%) coupled with lower taxes paid (- 23%) in 1Q16.

QoQ, 1Q16 core net profit grew 45% to RM141.2m despite the decline in revenue (-18%). While the reasons are largely similar to the above, its industry and plantation segments charted impressive growth rates of 35% and 275% on pretax level, respectively, driven by higher demand for piles and recovery in its plantation division, which registered losses in 4Q15.

Outlook

We believe that the unbilled sales of RM1.7b would provide the group 1–1.5 years of earnings visibly. However, we remain cautious on the property sector given the current market conditions and do not see near-term catalyst for the stock.

Change to Forecasts

We revised our FY16-17E core net profits lower by 6%-4% to RM685-736m as we factor in a lower contribution from its property division coupled with a downward revision on IJMPLNT’s FY16E earnings.

Rating

Maintain MARKET PERFORM

Valuation

Our SoP-based TP is lowered to RM6.96 (from RM7.00 previously) after the adjustment in IJMPLNT’s valuation. Our TP implies FY17E PER of 16.7x, in line with our target for big cap’s Fwd- PER of 16x.

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 Research - 26 Aug 2015