IJM Land (Kananga Research) buy; target price RM2.80

IJM Land
1Q11 exceeds expectations

• 1Q11 net profit of RM53.5m exceeded expectations, accounting for 31% of street’s FY11E net profit of RM171.6m and 37% of our RM145.8m. But 1Q11 revenue of RM365.0m was within estimates at 29% of street’s FY11E revenue of RM1.27bm and 27% of our forecast of RM1.36b. IJM Land (IJML) results were led by stronger than expected  development margins. 1Q11 sales recorded RM340m, making up 25% of FY11E sales target (excluding any en bloc sales) of RM1.38b (+10% YoY).

• YoY, 1Q11 net profit grew 101%, buoyed by stronger sales from The Light, its Klang Valley developments (e.g. Shah Alam 2, Bukit Mandarina) and Seremban townships. Property development pretax margins were extremely strong at 22.6% (+9.2ppt YoY); we think it is largely due to higher margin product mix and sales from completed or those at significant billing stages.

• QoQ, 1Q11 pretax profit grew 203% to RM80.3m, outpacing revenue growth of 49% QoQ. Besides stronger development margins, IJML recorded strong finance income which helped decrease net finance cost to RM10.3m (-51% QoQ).

• Upward revision to FY11-12E earnings by 28%-8% to RM186.5m (+72% YoY) – RM208.3m (+12% YoY). We have 1) stepped-up overall development margins 2) change earnings mix to lean towards higher margin products 3) increase launch sizes for its townships in Sandakan, Seremban and Shah Alam.
Based on media reports, the group expects to launch RM1.0b-RM1.2b worth of projects (about 10-15 projects) and has already launched headline projects like The Pearl Regency (GDV: RM500m) and The Light Collection I  (GDV: RM203m).
Additionally the group expects to recognize its AEON Mall @ Melaka en bloc sale in 4Q11, amounting to RM385m (including debt portion). Unbilled sales of RM850m provides <1 year’s earnings visibility. Upcoming launches are from Sandakan, Klang Valley and Johor worth RM120m, as reported after the group’s AGM today.

• Reiterate BUY with unchanged RM2.80 fair value, based on DCF driven diluted SoP RNAV. We continue to like IJML given 3-year CAGR 26%, an alternative proxy to Malaysia’s  property sector and large GDV pipeline over several regions, including overseas projects. Share price catalysts lies with more liquidity if its parent pares down its 62.5% stake and future foreign investors’ reentry particularly as it is a new alternative proxy to Malaysia’s property sector. Foreign shareholding is low at 12%-13%.


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