Investment Highlights

• We are keeping relatively unchanged our FY20–21F net profit forecasts and FV of RM1.16 based on 10x FY21F FD EPS, in line with our benchmark forward P/E of 10x for large-cap construction stocks. Maintain UNDERWEIGHT.

• IJM’s FY19 core net profit of RM420.3mil (adjusted for oneoff items, i.e. RM111.8mil write-back of profits from 20%- owned Argentine toll road company pursuant to a US$427mil settlement with the government, offset by RM71.6mil and RM41.4mil forex and disposal losses respectively) came in within our forecast and consensus estimates.

• FY19 core net profit was flat YoY. Higher property development profits (due to higher billings and the sale of high-margin commercial land) and infrastructure (underpinned by higher cargo throughput at the ports of 20mil tonnes vs. 17mil tonnes a year ago), were offset by weaker performance from construction (lower billings and margins), plantation (lower CPO prices, cost escalation and start-up losses from young plantations in Indonesia) and building materials (the double whammy of lower volumes and margins).

• IJM is confident about achieving RM2bil new construction job wins in FY20F vs. RM505mil it secured in FY19. It is eyeing largely building jobs from reputable clients and building works from Phase 2 of The Light Waterfront Penang worth about RM1.5bil. IJM currently sits on a construction order book of RM7.8bil. We are keeping our assumption that IJM will secure RM1.5bil worth of new construction jobs annually in FY20–22F, just to be conservative.

• IJM does not appear to be overly excited over the RM44bil East Coast Rail Link (ECRL) project. While the government has said that the mega project will have a local participation requirement of 40%, IJM gathered that the 40% local participation has yet to be defined (i.e. if it is 40% of RM44bil, or 40% of civil work excluding tunnelling, system and signalling works). It said that it is lobbying, via Master Builders Association Malaysia (MBAM), to divide the work “vertically” or “by stretch” so that the work packages consist of both low- and high-value jobs vs. “by type” where the Chinese contractors are more likely to make a clean sweep of high-value jobs, leaving the local players with only the low-value jobs.

Source: AmInvest Research - 30 May 2019