IJM Corporation - Within range at half-time BUY

- Maintain BUY on IJM Corp with an unchanged fair value of RM5.71/share; pegged at a 10% discount to its sum-ofparts (SOP) value of RM5.71/share.

- IJM reported a core net profit of RM234mil for 1HFY13, after excluding unrealised forex losses of RM8mil (1HFY12: RM27mil). Stripping off these exceptional charges, IJM’s 1H results was in-line with our estimates (52%) and constituted 47% of consensus. The group declared a single-tier interim DPS of 4 sen, similar to last year’s.

- Half-time core earnings rose 8% YoY. This was mainly driven by higher contributions from the construction and property divisions. 

- Construction earnings jumped 1.7x to RM58mil, benefitting from a higher recognition of local projects. There are only two legacy Indian jobs worth ~RM200mil remaining – accounting for 6% of its outstanding order book of RM3.3bil. One of the two – Pune Solapur Expressway – is due to be completed next March. As a result, construction margin has recovered by 4ppts YoY to 7.4%.

- Management remains hopeful of some tangible results on the West Coast Expressway (WCE) ‘soon’ although much would depend on the timing of the general election. Other notable jobs on its tender book list include KLIFD, Langat 2, RRIM re-development, Gemas-JB double tracking and Warisan Merdeka. 

- Property earnings rose 25% QoQ to RM67mil after stripping out the gain on disposal of Menara IJM Land in the preceding quarter. Pre-sales momentum (1HFY13: ~RM900mil) should pick up in 2H with new contributions from Bandar Rimbayu and The Lights Collection 3. 

- Plantation earnings fell by a sharp 37% YoY primarily as a result of lower crop output for its Sabah plantations (total CPO production for Malaysian operations: -19% YoY). Average CPO price realised was little changed (-1% YoY) at RM3,024/tonne. 

- Management is targeting around RM100mil in pre-tax contributions from Kuantan Port for FY13F (FY12: RM95mil), anchored by full-year contributions from the tariff hike received last May. The growth in cargo volumes has however slowed due to lower iron ore shipments. 

- IJM remains a top pick for large cap exposure to renewed order book opportunities for Malaysian contractors post elections. The stock is trading at trough PE valuations of 11x-15x (-1sd: 12x). A key re-rating angle will come from the WCE project; this could more than double the group’s order book to RM7bil.

Source: AmeSecurities