Investment Highlights

• We cut our FY18-20F forecasts by 18%, 9% and 5% respectively, downgrade our SOP-based FV by 7% to RM3.51 (Exhibit 2) (from RM3.76) but maintain our BUY call.

• IJM’s 1HFY18 core net profit of RM250.5mil missed expectations at only 41% and 38% of our full-year forecast and the full-year consensus estimates respectively. We believe the key variance against our forecast came from the weaker-than-expected plantation and building material profits.

• 1HFY18 core net profit eased 3% YoY. Higher profits from construction (backed by a record order backlog), infrastructure (driven by a 41% increase in cargo throughput at the ports) and property (due to a low base previously on forex losses), were offset by weaker performance from plantation (due to higher-than-expected replanting and harvesting costs and a high base previously on forex gains) and manufacturing (hurt by increases in input costs and a product mix for piles that was skewed towards low-margin small-diameter ones).

• YTD (FY March), IJM has already secured new construction jobs worth a total of RM2.9bil, which is fairly consistent with our assumption of RM3bil job wins annually in FY18- 20F. It currently sits on a record construction order book of RM9.4bil. IJM said that it is looking forward to participating in the East Coast Rail Link (ECRL) project. Also, The Light City integrated project (part of Phase 2 of The Light Waterfront Penang) currently developed by a JV between IJM and Singapore-based developer Perennial Real Estate, will generate some RM1.5-2.0bil internal construction works for IJM.

• IJM said that its FY18 property sales are on track to surpass RM1.4bil it achieved in FY17, having already recorded RM770mil sales in 1HFY18. It will continue to focus on small linked homes in Rimbayu (from RM622K/unit), and affordably priced high-rise residential projects in Segambut (RM500/sf) and Penang (RM800/sf). Its unbilled property sales now stand at RM2bil.

• 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 the 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 ECRL, 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 sectorspecific cyclical downturns, resulting in better earnings stability over the long term.

Source: AmInvest Research - 29 Nov 2017