Investment Highlights

• We fine-tune our FY17-19F forecasts by 2-4%, raise our SOP-based FV by 2% to RM3.76 (from RM3.70) (Exhibit 2) and maintain our BUY call.

• IJM’s FY17 core net profit of RM505.1mil (excluding 148.7mil one-off gains but including RM100mil gains from a land sale) missed our forecast and consensus estimates by 7% and 17% respectively. The key variance against our forecast came from lower-thanexpected property development profits due to its conscious decision to focus on low-margin affordable homes, coupled with increased incentives to entice buyers amidst a soft property market.

• FY17 core net profit eased 1% YoY. Higher profits from construction (thanks to a record order backlog) and plantation (on higher CPO prices), were offset by lower infrastructure profits (as the throughput at the ports plunged following the moratorium on bauxiterelated activities due to environmental issues).

• It currently sits on a record construction order book of RM8.6bil comprising buildings (34%), roads (36%) and non-road infrastructure (30%). It guided for construction job wins of RM3bil in FY18F, consistent with its job wins of RM3bil in FY17 (we therefore raise our assumption for job wins in FY18-20F to RM3bil annually, from RM2bil). The new jobs in FY18F are likely to come from buildings (it expects the award of some building jobs “over the next 1-2 months”) and infrastructure (we believe, including at least a work package from LRT3).

• It appeared confident that property sales in FY18F would match the RM1.4bil achieved in FY17. It will continue to focus on small linked homes in Rimbayu (from 20ft x 60ft and RM622,000/unit), and affordably priced high-rise residential projects in Segambut (RM500/sf) and Penang (RM800/sf).

• We like IJM Corp as it is a good proxy to the booming local construction sector given its involvement in key infrastructure projects such as West Coast Expressway, MRT2 and Kuantan Port Deepwater Terminal. Also, IJM is poised to garner a slice of action in the LRT3, Gemas–Johor Bahru double tracking and East Coast Rail Link, based on its forte and track record in rail projects (Seremban-Gemas double tracking, Delhi Metro, MRT1).

• IJM’s diverse business interests, spanning a wide range of sectors that also include property, plantation, building materials, toll roads and ports, should help counter sector-specific cyclical downturns, resulting in better earnings stability.

Source: AmInvest Research - 26 May 2017