Investment Highlights

• We cut our FY19–21F net profit forecasts by 16%, 10% and 9% respectively and reduce our FV by 9% to RM1.18 (from RM1.30) based on 10x revised FY20F FD EPS, in line with our benchmark forward P/E of 10x for large-cap construction stocks. Maintain UNDERWEIGHT.

• IJM’s 9MFY19 core net profit of RM302.9mil (adjusted for one-off items, largely forex losses) missed expectations at only 64% of our full-year forecast and 69% of full-year consensus estimates. The variance against our forecast came largely from the weaker-than-expected construction, building materials and plantation earnings. We have reflected the weaker performance from these divisions in our revised forecasts.

• 9MFY19 core net profit eased 13% YoY. Higher property development profits (due to higher billings and highmargin products) and lower taxes were offset by the weaker performance from construction (lower billings and margins), infrastructure (hurt by lower cargo throughput at the ports), plantation (lower sales volume and CPO prices, and start-up losses from young plantations in Indonesia) and building materials (the double whammy of lower volumes and margins).

• IJM currently sits on a construction order book of RM8.4bil. We are keeping our assumption that IJM will secure RM1.5bil worth of new construction jobs annually in FY19–21F. So far in FY19F, IJM has secured one key job, i.e. the construction of Affin Bank’s new headquarters in Tun Razak Exchange (TRX) for RM505mil.

• During a recent analyst briefing, IJM said that it is eyeing work packages from the RM5bil Klang Valley Double Track and several public hospital jobs (worth about RM500mil each). Internally, The Light City integrated project (part of Phase 2 of The Light Waterfront Penang) currently developed by a JV between IJM and Singapore-based developer Perennial Real Estate, could soon also tender out foundation works worth about RM100mil.

• IJM is on track to meet its FY19F property sales target of RM1.6bil (which matches that of FY18), having already recorded RM1.2bil sales during 9MFY19. It will continue to focus on mid-priced and affordable products such as linked homes in Rimbayu (22’ x 70’; from RM842K/unit) and Seremban 2 (20’ x 60’; from RM388K) and high-rise residential units in Penang (from RM550K/unit) and Pantai Sentral Park (from RM275K/unit). Its unbilled property sales now stand at RM2.2bil.

Source: AmInvest Research - 27 Feb 2019