Investment Highlights

• We fine-tune our FY19-20F forecasts by -3%, +2% and +3% respectively (largely to update our forecasts for IJM Plantation), raise our FV by 2% to RM1.89 (from RM1.85) and maintain our HOLD call. Our new FV is based on 12x revised FY20F EPS, in line with our benchmark forward PE of 11-13x for large-cap construction stocks.

• IJM’s 1QFY19 core net profit of RM136mil (adjusted for one-off items, largely forex losses) came in within expectations at 25% and 26% of our full-year forecast and full-year consensus estimates respectively.

• 1QFY19 core net profit grew 10% YoY, driven largely by the almost double property development profits (due to higher billings and high-margin products) and lower taxes.

• Other key divisions generally recorded weaker performance including construction (flattish billings during the quarter), infrastructure (hurt by lower cargo throughput at the ports), plantation (as higher production was negated by lower CPO prices, markdown of inventory value in accordance with prevailing CPO prices, and startup losses from young plantations in Indonesia) and manufacturing (due to the double whammy of lower volumes and margins).

• During a recent analyst briefing, IJM guided for RM2bil new construction job wins in FY19F (March), which are only half of RM4bil it secured in FY18. It is currently bidding for “3-4 building jobs” locally and it plans to pursue more projects in India.

• Internally, 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, could also generate some RM1.5- 2.0bil construction works for IJM. It currently sits on a strong construction order book of RM8.8bil. Our forecasts assume construction order book replenishment of RM2bil annually in FY19-21F.

• Also, IJM hopes in FY19F to match its property sales of RM1.6bil achieved in FY18. 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.

Source: AmInvest Research - 29 Aug 2018