IJM (FV RM6.34 - TRADING BUY) FY12 Results Review: Below Expectations

IJM’s FY12 net profit of RM409.1m was below both our and consensus numbers, at 87.0% and 89.4% of the full-year estimates respectively as the group took a hit in 4QFY12 due to  lower sales of piles and seasonally lower crop yields  at  its plantations. This was compounded by a reversal of toll revenue by its 50%-owned Vijayawada Tollway.  Nonetheless, we  still  see trading opportunities  as the news flow on the  potential rollout of the  WCE and NPE extension - likely in 2H12  -thickens. Maintain TRADING BUY, with our SOP-based FV revised to RM6.34.

Subpar showing. IJM’s FY12 revenue  stood at RM4.52bn (+21.4% y-o-y) while net profit amounted to RM409.1m (+30.8% y-o-y). At first  glance, the FY12 results seem fairly decent but the earnings actually fell short of both our and consensus estimates, at 87.0% and 89.4% of the full-year forecasts respectively. This was due to negative factors such as weaker-than-expected margins fetched by its construction and property division, as well as a reversal of toll revenue  by its 50%-owned Vijayawada Tollway in India in 4QFY12  pending  the  resolution of a dispute under arbitration with  a  local authority. On a quarterly basis, the 4QFY12 revenue of RM1.21bn (+15.9% y-o-y; +3.5% q-o-q) and earnings of RM84.0m (+>100% y-o-y; -37.9% q-o-q) were generally better yo-y as its loss-making construction division  - which dived into the red in 4QFY11  –recovered, although the results were  still  weaker sequentially partly due  to  slower manufacturing activities and seasonally lower crop yields in its plantations. Meanwhile, IJM declared a second interim DPS of 8.0 sen, bringing its total FY12 DPS to 12.0 sen.

What’s  in store for  2H12? IJM’s  outstanding construction orderbook now  totals RM4.3bn. The potential contracts for 2H this year are the WCE project, from which IJM is confident of securing at least RM4bn worth of jobs, as well as the potential rollout of the  RM1bn 10km  NPE extension, for which the  alignment  is  pending approval. Its property arm has unbilled sales of RM1.2bn and the group is targeting for RM1.5bn in property sales in FY13, focusing on mass-market launches. On the infrastructure  side, its 3 Indian tollways chalked up decent double digit traffic growth but their earnings are likely to continue to bear the brunt of escalating finance and amortization costs.

TRADING BUY.  Adopting  a cautious stance in light of the earnings  letdown, we  are revisiting  our model and tweaking  some of our assumptions,  including: i)  a cut in our FY13 orderbook replenishment forecast from RM6bn to RM5bn, ii) lower margins at the construction unit on anticipation of higher building material costs, and iii) thinning margin at the property division as the group focuses more on mass-market products this year. Consequently, our  FY13 and FY14 net earnings forecasts are  now  16.7% and 11.7% lower  respectively.  Still, we  maintain TRADING BUY  on IJM  for now, as we  await the potential awards of the much-hyped RM7bn WCE and the RM1bn 10km NPE extension come 2H this year. Our FV now stands at RM6.34, based on SOP valuation.

Source: OSK