IJM Corporation - 9M13 results within expectations

Period  3Q13/9M13

Actual vs. Expectations  The 9M13 results came in within our expectations and that of the consensus. The 9M13 core net profit of RM362m accounted for 78% and 76% of ours and the consensus FY13 full year forecast respectively. IJM has accounted for about RM8m in forex losses in 3Q13, which is not included in our core net profit calculation.

Dividends   No dividend was declared for the period.

Key Result Highlights  The 9M13 core net profit of RM362m increased by 11% on the back of a 3% increase in the revenue (YoY). The better growth in its earnings was mainly due to the recovery of its construction margin from 3% to 7%. This was further supported by the 18% higher revenue recognition in its construction segment. The plantation earnings came down by 37% (pre-tax level) due to a slower sales volume and the lower CPO prices (-23%).

 QoQ, the 3Q13 revenue and core net profit increased by 7% and 14% respectively. This was due to the increase of 3% and 81% in its construction and plantation earnings (pre-tax level). The higher construction earnings were mainly due to a 10% increase in its progress billings while the FFB production increased by c.34% in its plantation division.

 YoY, the core net profit of RM138m increased by 3% on the back of a 5% increase in the revenue. The construction pre-tax profit soared from RM9m to RM30m as more revenues were recognised during the quarter and there was a doubling of its pre-tax margin from 3% to 7%. However, the sterling performance was mitigated by poor earnings from its industrial division due to a higher holding cost for its stock piles and also due to lower export sales.

Outlook  Its construction order book now stands at c.RM2.5b for the next two to three years. This excludes WCE highway project of c.RM4.0b.

Change to Forecasts  No changes to our FY13 and FY14 earnings.

Rating   MAINTAIN MARKET PERFORM.

 Weaker plantation earnings could provide further downside risk to the current share price.

Valuation  Maintaining our Target Price of RM4.72 based on SOP valuation.

Risks  Delays in contract award for ETP-based projects.

Source: Kenanga