Investment Highlights

• We cut our FY19-20F forecasts by 4% and 6%, trim our SOP-based FV by 2% to RM3.46 (Exhibit 2) (from RM3.51), but maintain our BUY call. The downgrades are to reflect downward revisions in IJM Plantations' forecasts and FV.

• IJM’s 9MFY18 core net profit of RM357.6mil met our expectations at 72% of our full-year forecast, but missed the market expectations at only 59% of the full-year consensus estimates.

• 9MFY18 core net profit eased 11% YoY. Higher profits from construction (backed by a record order backlog), infrastructure (driven by a 23% increase in cargo throughput at the ports), were offset by weaker performance from property (due to forex losses), plantation (due to higher-than-expected replanting and harvesting costs and forex losses) 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 RM9.3bil. 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 Singaporebased developer Perennial Real Estate, will generate some RM1.5-2.0bil internal construction works for IJM.

• IJM recently told the media that it has set a property sales target of RM1.6bil in FY18F (vs. RM1.4bil achieved in FY17). For 9MFY18, it already chalked up RM1.2bil property sales. 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 about RM1.9bil.

• 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 ECRL and KL-Singapore high-speed rail, 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 over the long term.

Source: AmInvest Research - 28 Feb 2018