Results Review

• Stripping out the one-off expenses amounting to RM8.7mn, IJM’s 9MFY24 core earnings of RM303.4mn beat ours and consensus’ expectations as it came in at 82.8% and 80.4% of ours and the street’s full-year estimates, respectively. The positive surprise was mainly due to higher-than-expected profit contributions from the property and infrastructure segments.

• YoY, 9MFY24 core earnings jumped 33.9% to RM303.4mn in line with a revenue growth of 28.2%. The substantial improvement was chiefly driven by higher profit contributions across the board, except for the construction arm. The core PBT for the property segment nearly doubled to RM279.9mn compared to 9MFY23, thanks to accelerated work progress for ongoing projects coupled with the disposal gain of 2 parcels of land in KL and Bandar Rimbayu, Shah Alam.

• Furthermore, the infrastructure segmental PBT leapt to RM153.5mn from RM7.7mn, supported by recovery in cargo throughput, higher ship revenue and more lucrative tariff rates effective end March 2023. Nevertheless, the construction segmental PBT declined by 26.6% despite a strong revenue growth of 43.2%, attributed to higher raw material costs that eroded into its margin.

• QoQ, 3QFY24 revenue inched up 1.2% to RM1.5bn, primarily contributed by higher contributions from the construction and property divisions. That said, the core profit fell 32.3% to RM95.3mn, impacted by escalating building material and prolongation costs. Limited revenue recognition from new projects has further exacerbated this decline as they have not yet advanced to a substantial billing stage.

Impact

• Given the stronger-than-expected results, we adjust our FY24/FY25/FY26 earnings forecasts upward by 6.8%/4.0%/3.1%, respectively, after factoring in higher property sales.

Outlook

• The group’s current outstanding construction order book is around RM6.6bn, translating to about 6.2xFY23 construction revenue. Meanwhile, the property division is supported by unbilled sales of RM2.5bn. This will provide solid earnings visibility for the group over the next two years.

Valuation

• Recognising IJM as a strong contender for the upcoming mega infrastructure projects i.e.. KL-SG High Speed Railway and MRT3, we raise the target P/B ratio from 0.7x to 0.85x. This translates to an implied PER of 22x CY25 earnings, reflecting the group’s strong earnings visibility, supported by a sizable outstanding order book and unbilled sales.

• In tandem with the earnings revision and rolling forward our valuation base year to CY25 earnings, we raise the target price from RM2.01 to RM2.50. Maintain Buy on the stock.

Source: TA Research - 29 Feb 2024