IJM Corporation’s 1QFY22 core net profit slipped to RM48.8m (-76.2% QoQ), after stripping out exceptional items amounting to RM16.9m. This is mainly attributable to the imposition of FMCO in early Jun-21 impacting operations across its business segments which we expect to spillover into 2QFY22 as well. Nonetheless, the results were just in line with our expectation but below consensus, accounting for 20% and 13% of respective full year forecasts. We believe FY22 to be a back-loaded year with meaningful earnings recovery only taking place in the second half of the financial year, contingent on the resumption rate of operations once its workers are fully vaccinated. As a result, we make no changes to our earnings forecasts at this juncture. We believe the divestment of its plantation arm could be completed in 3QFY22 after obtaining shareholders’ approval at its AGM on 26-Aug-21, potentially leading to a oneoff disposal gain of c.RM700m and an indicative special dividend of 15sen/share in FY22. All in, we maintain our Neutral call with a revised SOP TP of RM2.00 (RM2.03 previously).
- Revenue declined on lockdown measures. The group’s 1QFY22 revenue declined by -18.4% QoQ to RM1.3bn due to the containment measures of FMCO capping the workforce capacity at c.60% and limiting the scope of construction activities extending till the first half of 2QFY22, a drag on earnings recovery in the near-term as well, in our view. This led to lower productivity hence weighing on revenue across its major business segments particularly both its Construction and Industry division which fell by -33% QoQ. Consequently, the group’s profit before tax (PBT) margin slumped to 12.8% in 1QFY22 from 15.4% in 4QFY21.
- Plantation segment remains a bright spot by posting a gain of +10.3% QoQ in revenue to RM272m and an expansion of PBT margin to 30.0% in 1QFY22 from 24.5% in 4QFY21 on elevated CPO price. Nonetheless, we acknowledge that there could be an earnings vacuum after the completion of its IJMP stake sale, possibly from 3QFY22 onwards, partially offset by an increase in interest income in which we have imputed in our forecast. The expected cash proceeds of RM1.5bn could also help to lower the group’s net gearing from 0.4x as of 30-Jun-21 to c.0.2-0.3x, enabling it to further strengthen its balance sheet to better compete in an environment of PFI-driven landscape moving forward.
- Decent property sales and cargo throughput. We gather that IJM’s property segment managed to achieved a sales of RM700m in 1QFY22, representing c.40% of total FY21 sales, driven by the recent launch of its fully taken-up Uptown @ Rimbayu (GDV: RM180m). Cargo throughput at its Kuantan Port remained stable at c.5.9m tons (22% of its FY21 volume) despite its customers’ operations were affected by lockdown.
Source: PublicInvest Research - 25 Aug 2021