AmResearch retains Buy on IJM Corp

IJM Corp's project on Penang island

KUALA LUMPUR: AmResearch maintains its Buy  call on IJM Corp with an unchanged fair value of RM4.10 a share or 10% discount to net asset value (NAV).

The infrastructure-to-property company reported a 1QFY16 core net profit of RM189mil (up 12% on-quarter), bringing 1HFY16 net profit to RM358mil. 

At half time, the robust 44% on-year jump in core earnings was largely attributable to higher contributions from the infrastructure and industries divisions. 

“This accounted for 57% of our core FY16F net profit forecast of RM623mil. We however, maintain our estimates for now on expectations of a slight slowdown in the 2H, on (i) slower property sales; and (ii) a moderation in the port divisions’ earnings,” it said.

AmResearch said excluding a gain on the sale of a 74% stake in the Jaipur Mahua Tollway (RM169mil) and forex movements, it estimated core infrastructure earnings to have jumped 5.4 times to RM203mil. 

Notably, Kuantan Port contributed pre-tax profits of RM147mil in 1HFY16, which was already matching FY15’s total. Cargo volumes surged to 23 million tonnes (FY15: 20 million tonnes), although traffic is expected to moderate slightly in 2HFY16 during the monsoon period.

Property earnings fell 41% on-year on the back of a slower property market and the completion of certain key projects (unbilled sales: RM1.7bil). The 1HFY16 new sales were marginally lower at RM650mil (1QFY16 - RM300mil; 23QFY16 – RM350mil) vs over RM700mil a year ago. 

Construction earnings fell 13% as margins normalised to 14% from 19% a year ago (2QFY16: 12%) following the completion of certain key projects during the quarters. But, we expect a re-acceleration of construction earnings towards the later part of 2HFY17 when progress from its newer projects starts to gain traction. 

“Notably, the weight of recognition for the WCE and the NDWT would be more pronounced once physical progress for both projects cross the 10% market as projected by early 2016. 

“With a sizeable orderbook of RM7bil, IJM’s orderbook prospects remain bright moving into the 11th Malaysia Plan period. Apart from the upcoming LRT Line 3 and MRT 2 works, IJM could be in the picture for the SUKE/DASH highways, Pan Borneo Expressway, balance of works for the NDWT & WCE as well as select in-house jobs (e.g. Phase 2 of The Lights),” it said.