IJM Corp: Drag From Plantations

IJM’s 1HFY13 core earnings of RM207.5m came in below our and consensus estimates due to the underperformance of its plantation division. Factoring in our plantation analyst’s revised estimates, we are cutting IJM’s net profit forecasts by 4.5% for FY13 and 6.1% for FY14. That said, we still see strength in its construction and infrastructure segments, which reported robust results. Given that the stock’s undemanding valuation provides a potential upside of 13.5% from our revised RM5.72 FV, we reaffirm our TRADING BUY call.

One-off items lift overall numbers. IJM’s 1HFY13 revenue inched up by a marginal 2.4% y-o-y to RM2.18bn while net profit was 19.1% higher during the six-month period at RM226.1m. Stripping off unrealized forex losses as well as some one-off items, its 1HFY13 core earnings would have been 4.4% lower y-o-y at RM207.5m, which we deem below our estimate due to the subpar showing from its plantation division.

Plantation the main culprit. By segment, revenue from IJM’s construction segment expanded 24.8% y-o-y while its contribution to group PBT more than doubled to RM57.8m, boosted by wider margins. Likewise, the infrastructure segment chalked up 15.2% revenue growth, with core PBT correspondingly growing by 6.4% due to higher contributions from its Kuantan Port and New Pantai Expressway. However, the property division saw a 1.4% dip y-o-y for both its topline and core PBT as sales declined. Meanwhile, IJM’s industry segment saw its topline shrink 12.9% while its PBT fell 12.1% owing to a lower tonnage of piles delivered due to delays in some projects. Overall, the biggest letdown was in its plantation segment, which witnessed a 22.0% drop in revenue and 36.6% plunge in PBT contribution, weighed down by lower FFB production and weak CPO prices.

Dividend declared. Meanwhile, IJM’smanagement has declared its first interim DPS of 4.0 sen, which we deem in line with our full-year dividend forecast of 13.0 sen per share.

Toning down forecasts. Given the YTD results disappointment, we are trimming our FY13 and FY14 net profit estimates by 4.5% and 6.1% respectively, in tandem with our plantation analyst’s earnings revision, as well as taking into account the slower property sales growth going forward in view of the currently murky property market outlook.

TRADING BUY. All in, we are revising our SOP-based FV from RM6.32 previously to RM5.72, in line with our revised FV for IJM Plantations (from RM4.51 previously to RM3.63), as well as to incorporate the recent weakness in IJM Land’s share price. As the stock’s undemanding valuation provides a potential upside of 13.5%, we reaffirm our TRADING BUY call.

FYE Mar (RMm)	FY10	FY11	FY12	FY13f	FY14f
Revenue	4,013.5	3,720.7	4,517.9	4,973.0	5,501.3
Net Profit	332.6	304.5	409.1	459.1	573.6
% chg y-o-y	14.6%	-8.4%	34.3%	12.2%	24.9%
Consensus				504.1	594.8
EPS (sen)	23.5	21.6	29.0	32.5	40.6
DPS (sen)	9.0	10.5	11.7	13.0	16.2
Dividend yield (%)	1.8%	2.1%	2.3%	2.6%	3.2%
ROE (%)	6.7%	6.0%	7.9%	8.4%	9.9%
ROA (%)	2.7%	2.4%	2.8%	3.0%	3.8%
PER (x)	21.4	23.4	17.4	15.5	12.4
BV/share (RM)	3.61	3.54	3.79	3.96	4.20
P/BV (x)	1.4	1.4	1.3	1.3	1.2
EV/EBITDA (x)	12.8	11.8	10.2	10.2	8.5

Results Table (RMm)

FYE Mar (RMm)	2Q13	1Q13	Q-o-Q chg	YTD FY13	YTD FY12	Y-o-Y chg	Comments
Revenue	1,141.8	1,041.7	9.6%	2,183.5	2,131.5	2.4%	1HFY13 numbers were dragged down by its plantation division, which registered a 22.0% drop in topline contribution due to lower FFB production as well as less favorable CPO prices
EBIT	272.3	201.1	35.4%	473.5	464.5	1.9%
Net interest expense	-42.8	-42.3	1.2%	-85.1	-98.4	-13.5%
Associates	18.1	2.6	>100%	20.6	18.1	14.4%
Joint ventures	-14.3	4.8	->100%	-9.5	-21.1	-54.9%
PBT	233.3	166.2	40.4%	399.5	363.1	10.0%
Tax	-54.5	-46.7	16.7%	-101.2	-98.2	3.0%
MI	-41.5	-30.7	35.3%	-72.2	-75.0	-3.8%
Net profit	137.3	88.8	54.5%	226.1	189.8	19.1%	Stripping off some non-core items, 1HFY13 core earnings came in at RM207.5m, falling below our expectations
EPS (sen)	9.7	6.3		16.0	13.4
DPS (sen)	4.0	0.0		4.0	4.0		On the flip side, a first interim DPS of 4.0 sen was declared
EBIT margin	23.9%	19.3%		21.7%	21.8%

SOP Component	Amount (RMm)	Multiplier/ WACC	Stake	IJM's Share	Per Share
CY13 Earnings from construction	96	16	100%	1,530	1.08
CY13 Earnings from ICP	112	14	100%	1,572	1.11
Tolls - NPE, Besraya & LEKAS	1,266	9%	-	1,266	0.90
Ports - Kuantan Port	1,336	8%	100%	1,336	0.95
Power - Gautami Power	486	10%	20%	97	0.07
Water - Binh An Water Corp	49	9%	36%	18	0.01
IJM Plantations - OSK RM3.63 FV	2,910		55%	1,604	1.14
IJM Land at current market cap	2,947		66%	1,937	1.37
Stake in other listed entities	790		-	144	0.10
SOP Value				9,503	6.73
Discount to SOP Value		15%		(1,425)	(1.01)
Fair Value				8,078	5.72

EARNINGS FORECAST

FYE Mar (RMm)	FY10	FY11	FY12	FY13f	FY14f
Turnover	4,013.5	3,720.7	4,517.9	4,973.0	5,501.3
EBITDA	898.6	978.8	1,130.0	1,133.8	1,350.6
PBT	578.0	659.7	801.6	807.6	1,017.4
Net Profit	332.6	304.5	409.1	459.1	573.6
EPS (sen)	23.5	21.6	29.0	32.5	40.6
DPS (sen)	9.0	10.5	11.7	13.0	16.2
Margin
EBITDA (%)	22.4%	26.3%	25.0%	22.8%	24.6%
PBT (%)	14.4%	17.7%	17.7%	16.2%	18.5%
Net Profit (%)	8.3%	8.2%	9.1%	9.2%	10.4%
ROE (%)	6.7%	6.0%	7.9%	8.4%	9.9%
ROA (%)	2.7%	2.4%	2.8%	3.0%	3.8%
Balance Sheet
Fixed Assets	6,936.1	6,705.1	7,372.1	7,582.7	7,761.0
Current Assets	5,598.6	5,848.7	8,802.3	7,354.4	7,786.8
Total Assets	12,534.7	12,553.8	16,174.4	14,937.1	15,547.8
Current Liabilities	2,685.2	2,685.6	2,952.8	3,076.7	3,200.4
Net Current Assets	2,913.4	3,163.1	5,849.4	4,277.7	4,586.4
LT Liabilities	3,425.3	3,401.3	3,980.1	3,920.0	3,861.4
Shareholders Funds	5,096.0	4,997.1	5,348.1	5,593.0	5,937.1
Net Gearing (%)	48.7%	41.5%	41.8%	41.3%	36.6%

 Source: OSK