IJM Corporation - Construction turns around, but margins still muted Buy

- Maintain BUY on IJM Corp with a lower fair value of RM6.84/share (previously: RM7.23/share), as we rollforward our valuation base to FY13F on a higher net gearing position. Our lower fair value also takes into account higher provisions for road maintenance impacting its toll road divisions arising from IFRIC12.

- IJM reported FY12 results that were in-line with our expectations, but behind street estimates. The group declared a second interim dividend of 8 sen, taking FY12F DPS to 12 sen or a yield of 3%.

- Stripping out the impact from unrealised forex movements, IJM’s core net profit would have surged by a strong 58% YoY, largely spurred by a turnaround in its construction division (RM62mil profit vs. a RM79mil loss a year earlier).

- Construction margins, however, remained fairly subdued at the 3%-4% range. Management expects a more pronounced pick-up in margins to only kick-in in FY14F, when the impact from its predominantly domesticorientated orderbook (~90%) takes centre-stage.

- IJM’s outstanding order book stands at ~RM4.3bil with the latest replenishment being the Sg.Buloh-Kajang MRT viaduct package 5 worth RM974mil secured in January. The group is targeting to double its order book to ~RM8bil through new bids, including over RM4bil worth potential jobs from the West Coast Expressway (WCE) that is majority-owned by its associate, K Euro.

- Property unit IJM Land enjoyed a brisk 4QFY12, with~RM450mil worth of new sales registered (FY12: RM1.4bil). Moving into FY13F, IJM Land is gearing up for the maiden launch of the Rimbayu development near Kota Kemuning. Unbilled sales stand at approximately RM1.3bil.

- IJM’s infrastructure division would have recorded a 36% YoY jump in earnings if not for unrealised forex losses. This somewhat masked the strong performance of Kuantan Port, with a near-doubling of its earnings via a 30% revision in tariffs and stronger cargo throughput. 

- Plantation earnings rose ~10% YoY, although 4QFY12 was particularly weak due to higher fertiliser application and seasonally lower crop volume. More than half or around 21,000ha of its Indonesian landbank have been planted – where maiden contributions came in during the quarter.

- We project higher manufacturing earnings of RM141milRM152mil for FY13F-FY14F vs. RM138mil in FY12 on improving local demand (order book of five to six months). Losses at its Chinese plants are narrowing although its Indian operations remain in a soft spot.      

Source: AmeSecurities