IJM Corpn (IJM) recorded revenue of RM1.1bn in 2QFY22, a decrease of 24.8% YoY. A core net loss of RM8m was reported however, as compared to a core net profit of RM120.8m in 2QFY21. The weaker performance is mainly attributable to the re-imposition of the nationwide lockdown, which had restricted business activities for most of the 2QFY22 period. The period also saw the deconsolidation of the results of the plantation division following the completion of the disposal of its 56.2% stake in the company. For 1HFY22, IJM recorded a core net profit of RM40.8m, increasing 21.5% YTD. Overall, the results are below our and consensus expectations, accounting for only 20% and 12% of respective full year projections. We cut FY22/23 earnings forecast by 26.2%/7.4% to reflect the weaker-than-expected 2QFY22 earnings on account of weaker profit margins. No change to our FY24 projection however. We foresee earnings for 2HFY22 improving significantly in the absence of movement restrictions, leading to higher capacity at workplace and traffic volume for its highways. Subsequently, our SOTP-derived TP adjusted slightly lower to RM1.92 (from RM2.00). Neutral call is maintained.

• Weak earnings on lockdown measures. The group’s 2QFY22 revenue declined by 17.7% QoQ to RM1.1bn due to the containment measures, limiting the workforce capacity at c.60% as well as the scope of construction activities. This led to lower productivity hence weighing on earnings across its major business segments i.e., construction which saw pre-tax profit margin falling 5.2ppt to 2.8%, as well as property and infrastructure division, seeing both segments reporting pre-tax losses of RM6.3m and RM8.8m respectively. Subsequently, the group reported core net loss of RM8m in 2QFY22 as compared to a core net profit of RM48.8m in 1QFY21.

• Earnings to improve from 2HFY22 onwards. We foresee earnings for the 2HFY22 improving significantly in the absence of movement restrictions, leading to higher capacity at workplace amid increased efficiency. It will be supported by its healthy construction orderbook of RM4.5bn, inclusive of YTD wins of RM1.3bn. This translates to a coverage ratio of c. 2.1x based on FY21 construction revenue. Management is targeting to secure RM2bn orderbook, with more infrastructure-related projects to come. CY22 orderbook replenishment prospects is expected to come from a larger portion of the ECRL project (e.g., ECRL spur line to its Kuantan Port) and mega public infra projects namely MRT3 which the group is one of the potential major beneficiaries.
  As for the property segment, earnings will be supported by unbilled sales of RM1.4bn (3.8x coverage ratio). YTD, the Group has achieved RM1.1bn of new sales, accounting for 64.7% of its RM1.7bn target. This suggests that the current low interest rate environment, coupled with incentives such as stamp duty waivers and housing discounts have supported the mid-market segment. The upcoming launches worth RM729m in Bandar Rimbayu, Austin Duta Ph9A Johor, and Seremban 2 – just to name a few.
  We view that the Port operations business is also expected to perform positively with the increase of completed product exports to China, as well as the return of imports, while traffic volume for its highways will improve as well given the absence of movement restrictions.

• Dividend. Management declared a first interim and special dividend of 2sen and 15sen per share this quarter, bringing total dividend declared for the current financial year to 17sen/share.

Source: PublicInvest Research - 30 Nov 2021