IJM Land (Kenanga Research) buy; target price RM2.81

IJM Land
FY10 inline

• FY10 net profit of RM108.7m is within expectations, accounting for 98% of street’s FY10E net profit of RM110.8m and 105% of our RM103.9m. IJM Land (IJML) recorded FY10E property sales of RM1.25b vs. its initial sales target of RM1.0b, driven by The Light (Linear and Point), Seremban 2, Shah-Alam2, Sandakan, Nusa Duta and on-going niche projects in Klang Valley. Management stated that FY11E sales target will likely be similar, if not better, than FY10E.

• YoY, FY10 net profit grew 113% driven by strong sales from Platino and Summer Place, on -going townships and full-year consolidated earnings post acquisition of IJM Properties. EBITDA margins also improved significantly by 5.3ppt to 18.0% due to recognition of higher margin projects (e.g. Platino).

Additionally, the group recognized RM10.3m gain on disposal of a subsidiary.

• QoQ, 4Q10 pretax profit slid 22% to RM26.7m. Share of associate/jointly controlled entities losses registered stronger losses of RM2.1m (3Q10 loss of RM0.4m); we understand its 50:50 JV project, Somerset Ville, is the cause and we think it could be cost overrun issues. Also, construction revenue fell 68% YoY while finance cost inched up 36% QoQ as there were higher short -term borrowings which tend to be costlier.

• Lowering FY11-12E earnings by 6%-4% to RM151.4m (+39% YoY) - RM193.2m (28% YoY) assuming higher finance cost due to higher short term loans. We are still anticipating FY11E property sales of RM1.33b given exciting projects in the pipeline and potential AEON mall, Melaka en bloc sale; The Light Collection 1 should be soft launched this coming weekend and will carry an initial ASP of RM580psf. Although ASP is lower than previous guidance of RM600psf, strong demand for The Light will eventually drive up average ASP to RM600psf on subsequent releases. Unbilled sales of RM850m provides <1 year’s earnings visibility.

• Maiden dividend of 2.0sen DPS (single-tier; 1.0% yield) or 20% net payout, inline with our FY10E 1.9sen NDPS (2.5sen GDPS). Assuming similar payout, we estimate FY11-12E DPS of 2.8sen-3.6sen (1.4%-1.7% yield).

• Reiterate BUY with RM2.81 fair value , based on SoP RNAV. We continue to like IJML given: 1) promising growth prospects (3-year CAGR 27%) 2) an alternative proxy to Malaysia’s property sector 3) geographically diversified strategic landbank with large GDV pipeline 4) positive news flow from headline projects (e.g. The Light) 5) low foreign shareholding to benefit from future foreign investors’ re-entry.