IJM Corp - Weakened by Plantation Hiccup

IJM’s 1QFY13 net profit of RM88.8m was below both our and consensus numbers, at 17.6% and 16.7% of the full-year estimates respectively, dragged down by its plantation division’s weaker FFB production. That said, we are trimming our earnings forecasts by 1.3%-4.9% to fine-tune our model following the release of the company’s FY12 annual report. Maintain TRADING BUY, with our FV marginally lower at RM6.32, on rolling forward our valuation to CY13 and attaching a 15% discount to our SOP valuation in view of growing election risk.

A blow from weak FFB production. IJM’s 1QFY13 revenue ticked up by a meager 0.8% y-o-y to RM1.04bn, with revenue from its construction and property divisions growing by 15.3% and 2.4% respectively. The group’s outstanding orderbook now stands at approx. RM3.92bn while unbilled sales are at a healthy RM1.20bn. Its infrastructure segment saw revenue climb 16.8% y-o-y on higher cargo throughput at Kuantan Port. The industry division, however, saw its topline shrink by a sharp 19.5% due to delays in the progress of projects, but segmental PBT was bolstered by the higher margins recognized. Overall, the earnings disappointment during the quarter was mainly attributed to the plantation division, whose sales dived 14.6% while segmental PBT plunged 56.1% due to the sharp 37.2% drop in FFB production as the cropping pattern in Sabah changed. All in, the 1QFY13 net profit was down 22.8% at RM88.8m, or RM98.8m if the exceptional items, including a RM21.0m gain on disposal of properties and RM31.0m unrealized forex losses, are excluded. Q-o-q, the numbers were generally weaker, except for its industry division, which recorded an unrealized forex gain in the previous quarter.  

Trimming forecasts. We are not making major changes to our core assumptions as our plantation analyst continues to hold the view that IJM Plantations’ earnings are likely to pick up in the remaining quarters boosted by a recovery in Sabah production, but are revisiting our model and fine-tuning our estimates following the release of IJM’s FY12 annual report, for housekeeping purposes. This accordingly shaves off our net profit forecasts by 4.9% for FY13 and 1.3% for FY14.

TRADING BUY. Rolling forward our valuation to CY13, our SOP-based valuation on IJM now stands at RM7.44/share. Nonetheless, with the election now looking increasingly unlikely to be held this year, we are attaching a 15% discount to incorporate the mounting political risks as we are of the view that IJM’s prospective projects i.e. the RM7bn WCE and the RM1bn NPE extension, would receive the nod from authorities only after the country’s 13^th national election. This marginally reduces our FV to RM6.32, which translates into a reasonable CY13 PER of 15.4x. Maintain TRADING BUY.

Source: OSK