IJM Corporation 2QFY09 : Above expectation
• A decent quarter despite a 4.5% y-o-y drop in net profit.
6MFY09 results were above house expectation but within market expectation. Annualised net profits came in at 111.0% and 98.8% of house and consensus estimates respectively. A special interim dividend of 18.8 sen (net) was declared during the quarter and was paid on 25 November.
• Weaker construction, plantation and property earnings.
While weaker plantation earnings was expected given lower CPO prices, construction earnings took a further hit as pre-tax margin for this division shrunk to just 0.8% this quarter vs 4.2% last quarter. IJM’s India
construction division went into the red as past profits of about RM20 – 40m were reversed this quarter due to (1) high building materials prices still prevalent in India, and (2) higher working capital cost. Going forward, construction margins will be around 2% – 3% for the remainder of FY2009 when most of “legacy” jobs are completed. Margin is expected to normalised to at least 8% from FY2010 when newer jobs with better margin start to contribute. Despite challenges going forward, management were optimistic of RM1-2bn job replenishment over next 6-12 months. Current order book is about RM4.6bn, of which half are from overseas. Property division also reported a lacklustre result. Stripping out a RM38m gain from land sold to Tesco, pretax profit will be reduced from RM46.6m to just RM8.6m. Minimal new launches is expected going forward as IJM focuses on sale of existing stocks (including Bumi release units) and will only launch projects with good pre-bookings and minimal infrastructure costs.
• Industry division the surprise bright spot.
Industry division overtook plantation division as the biggest earnings contributor. Strong piles demand for numerous port expansion projects domestically and regionally has contributed to a 107% y-o-y increase in
pretax profits to RM55.7m. Margin has also expanded to 18.8% from 12.5% a year ago as cost declined but selling price remained firm.
• Maintain BUY call.
We reiterate our BUY call with an unchanged target price of RM6.10. Our earnings estimate is unchanged for now as we expect weaker earnings in 2HFY09 due to lower CPO prices.