Period

3Q16/9M16

Actual vs. Expectations

IJM’s 9M16 core net profit (CNP*) of RM439.1m met our full-year expectation (RM622.4m) at 71%, but missed streets’ (RM671.7m) at 65%. We believe the disappointment in earnings vis-à-vis streets’ expectation was mainly due to the poor performance of IJMPLNT.

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 9M16 CNP saw a dip by 4% to RM439.0m on the back of the marginal decline in revenue. Our CNP was derived after excluding: (i) one-off disposal gains on its two highways Jaipur Mahua Tollway and Swarna Tollway, and (ii) net forex gain of RM23.1m. The main drag on earnings was mainly attributable to its property and plantation divisions, which saw theirs pre-tax profits plunging by 58% and 55%, respectively. On the positive side, its financing cost came down by 18% underpinned by the improvements in its net gearing, which eased to 0.45x from 0.51x previously following the disposal of two highway assets.

QoQ, 3Q16 CNP declined by 18% to RM134.3m despite higher revenue growth of 8% as its profitability was dragged down by three of its major divisions, i.e. construction, property, and industry suffering compression in margins by 5ppt-23ppt which reduced the pre-tax profits from these divisions by 17%-76%.

Outlook

IJM’s outstanding orderbook still stands at c.RM7.0b, and expect its unbilled sales to sustain at c.RM1.6b; the group would have at least two years of earnings visibility. That aside, IJM is positive on the construction sector outlook as they would be eyeing almost all of the infrastructure jobs that are to be awarded next year, i.e. MRT2, LRT3, Pan Borneo, SUKE, and DASH.

While we are fairly cautious on the property outlook for IJM, we are slightly positive with plantation division on IJMPLNT’s above-average FFB growth prospect.

Change to Forecasts

Following the downgrade in IJMPLNT’s earnings, we tweaked our FY16-17E CNPs lower by 1.9%-1.6% to RM610.4m-RM669.0m.

Rating

Maintain MARKET PERFORM

Valuation

Following the upgrade in IJMPLNT’s TP to RM3.76 on valuation re-basing (from RM3.64), we also adjusted our SoP-based TP higher to RM3.51 (from RM3.50). However, we still maintain our MP recommendation on the stock due to the lack of re-rating catalyst, especially in the property sector which is one of their major earnings drivers.

Risks

Lower-than-expected orderbook replenishment, property sales, CPO prices and FFB growth.

Slower-than-expected construction progress

Source: Kenanga Research - 26 Feb 2016