Investment Highlights

• We maintain HOLD on IJM Corp (IJM) with an unchanged  SOP-based fair value (FV) of RM1.79/share, implying an  FY24F PE of 15x, 6% below its 5-year average of 16x.  There is no FV adjustments for our 3-star ESG rating. 

• IJM’s FY23 core net profit (CNP) of RM269mil (after  adjusting for exceptional items) was within our  expectations but 9% below consensus estimates. We  make no changes to our earnings forecast. 

• IJM declared a final dividend of 4 sen/share and special  dividend of 2 sen/share, bringing total FY23 DPS to 8  sen/share – 33% higher than our estimated 6 sen/share.  This translates to a pay-out ratio of 171% and decent  dividend yield of 5%. Looking ahead, we conservatively  maintain FY24F-26F DPS at 6 sen/share each with a  pay-out ratio of 40%-60%. 

• FY23 CNP expanded 46% YoY to RM269mil on the back  of stronger contribution from its manufacturing &  quarrying, property development, and infrastructure  segments as follows:
  • Manufacturing & quarrying segment’s PBT surged  2.2x YoY to RM152mil in FY23 due to improved margins resulting from increased plant productivity.  Revenue also grew 17% YoY to RM1.0bil on the back of higher selling prices and robust sales volume. 
     
  • FY23 property development PBT soared 3.7x to  RM367mil, underpinned by property sales, cost finalisation of completed projects and higher profit margins derived from the current portfolio of ongoing development projects. 
     
  • After adjusting for impairment and FX losses,  infrastructure segment’s FY23 core PBT grew 14% to  RM175mil, driven by higher toll revenue locally and  overseas, as reflected in the segmental revenue  growth of 20% YoY. 
     
  • Construction revenue fell 30% to RM1.1mil in FY23 as  new projects secured are still in the initial stages of  construction. This led to lower PBT of RM91mil  (-25% YoY).
     
• IJM’s outstanding order book slid 2% QoQ to RM4.5bil (2.3x FY24F construction revenue) in 4QFY23.  FY23 replenishment amounted to RM1.5bil, which was within our expectations. Notable wins included  the construction of Kapar Hospital (RM831mil) and ASEM chip assembly/testing facility (RM341mil). 

• Looking ahead, we have pencilled in a replenishment assumption of RM3bil for FY24F, which is in line  with IJM’s internal target. Further wins may come from MRT3, ECRL, extension of toll road (part of toll  way restructuring) and development of industrial buildings, as well as Indian highway projects. IJM has  also indicated intentions to expand its geographical footprint to East Malaysia and Indonesia. 

• IJM’s FY23 property sales of RM2.7bil (including land sales of RM0.9bil) were 10% below management’s earlier internal and our target of RM3bil for the year. We project property sales of RM2bil for FY24F,  supported by planned launches of RM2.9bil and unbilled sales of RM3bil as at end-Mar 2023. 

• In FY23, the manufacturing and quarrying division secured orders of 1.8mil tonnes (-15% YoY against  2.2mil tonnes in FY22), bringing outstanding order book to 1mil tonnes. This replenishment beat our  earlier estimate of 1.5mil tonnes by 20%. For FY24F, we assume a replenishment of 1.8mil tonnes, supported by exports and local projects. 

• As traffic at IJM’s toll roads recover to pre-MCO levels, core EBITDA contribution from Malaysian tolls  rose 40% to RM246mil in FY23. The discussions for the toll restructuring of BESRAYA and LEKAS have  been finalised. Meanwhile, talks for NPE and WCE are still ongoing. 

• Risks to IJM include (i) eroding margins from higher-than-expected building material costs and labour  shortages; and (ii) shelving of mega projects. 

• We view IJM as fairly valued as it is currently trading at a FY24F PE of 15x, near its 5-year average of  16x.

Source: AmInvest Research - 30 May 2023