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IJM Corporation
3QFY11 : Within expectations
· Within expectations
3QFY11 net profit was reported at RM132.2m, which brings 9MFY11 net profit to RM341.5m. Removing RM31m of foreign exchange translation gains recorded in the preceding quarter, core net profit of RM310.5m came in within both house and consensus estimates, making up 77.8% and 75.5% of the numbers respectively.
· Revenue -15.1%, net profit +40.2% y-o-y
With a 39% decline y-o-y, the construction segment was the largest contributor to the drop in revenue on a year to date basis. The lower construction revenues were largely due to substantial completion of older projects and delays in some of the overseas jobs, while newer projects have yet to reach a meaningful stage. Likewise, the group’s property
projects are also in the early stages of construction. Despite the fall in revenues, core net profit improved by 40.2% largely aided by improving margins in the construction and property segments, as well has higher average CPO prices of RM2,671/MT this year compared to RM2,205/MT in the corresponding period of FY10.
· Construction segment to see improvement
Going forward, the construction segment is expected to see a gradual improvement as low margin legacy jobs are cleared. Margins have lifted to 3.4% in the current quarter as compared to a low of 1% in 2QFY10. Furthermore, the group is expected to benefit from the rolling out of 10MP projects such as the MRT project and highway construction. The expected pick up in construction activities will improve demand for building materials, which bodes well for the Industry segment.
· Maintain HOLD, TP:RM5.94
We are revising our earning estimates upwards by 3% to 5.7% to reflect the lower than expected cost per tonne recorded in the plantation segment. As such, our target price is revised upwards to RM5.94 based on 18.4x PE target (1x std deviation above average) on CY11 EPS. We maintain our Hold call as we believe the stock is fully valued at current
levels. Potential positive re-rating catalyst could come in the form of higher than expected construction order book replenishment.
