• 2QFY24 ahead of expectations; strong property and Kuantan Port earnings.

• IJM raises its new order win guidance to RM4bn (from RM3bn) for FY24F.

• Reiterate Add and SOP-based TP of RM2.15.

2QFY3/24 Results Ahead of Expectations

• 2QFY3/24 core net profit was RM139m (+95% yoy; +109% qoq) bringing 1HFY3/24 core net profit to RM206m, at 57% of our and Bloomberg consensus’ full-year forecasts. Even though 2QFY24 property earnings were lifted by the sale of two parcels of industrial land in Bandar Rimbayu amounting to RM20m, we deem the results slightly ahead of expectations.

• We see two key positive highlights from the results announcement. The first is property pre-tax profit, which jumped 160% yoy in 2QFY24 to RM76m due to the sale of land mentioned above, lifting pretax margin to 16%, vs. 9% in 2QFY23. Stripping this out, 2QFY24 property pretax profit would still have risen by 92%. 2QFY24 property presales were RM590m (1QFY24: RM260m) bringing 1HFY24 presales to RM850m. While appearing slightly short vs. its FY24F presales target of RM2bn, we expect presales to catch up in 2HFY24F.

• The other positive is its infrastructure division pretax profit of RM54m in 2QFY24 (vs. RM17m loss in 2QFY23) due to strong profit recovery at Kuantan Port (RM42m in 2QFY24 vs. RM9m in 2QFY23) which compensated for the 17% pretax profit decline for its Malaysian toll roads business (Besraya and NPE) to RM38m as the terms of the concession agreement have been restructured. 1HFY24 throughput for Kuantan Port was 12.7m tonnes (FY23: 22.7 tonnes).

• Stripping out the impact of forex for its industry division, 2QFY24 pretax profit showed a marginal yoy growth of 4% to RM45m.

• Its construction division’s pretax profit fell by 37% yoy in 2QFY24 to RM15m due to cost pressures from older projects, while the more recent contract wins have not reached a stage to allow for meaningful contribution.

IJM Ups Guidance for New Order Wins

• IJM has secured 8MFY3/24F contract wins of RM2.8bn, bringing its outstanding orderbook to RM6.4bn. IJM said it believes it can potentially achieve RM4bn in new orders for FY3/24F (vs. its earlier guidance of RM3bn, and our forecast of RM3.5bn). Potential new wins may come from semiconductor factories, industrial warehouses, and the North Pantai Expressway extension (c.RM1bn). IJM participated in the Request for Information for the KL-SG HSR and said it is keen to bid for most projects, such as MRT 3, Penang LRT and airport expansion projects. As for overseas markets, IJM said its focus is on India and Indonesia, where it expects projects to materialise in 1HCY24F.

• Its Industry division under Industrial Concrete Products is currently in discussions with the Sarawak State to set up a new spun pile factory. We understand from IJM that this factory will also be used to supply Sabah and the entire Borneo Island if it materialises.

• IJM’s proposed acquisition of Pestech International Bhd (PEST, NR, CP: RM0.28) has been delayed as both parties have agreed to extend the fulfilment of conditions precedent pursuant to the Subscription Agreement to not later than 23 Feb 24 (from 4QCY23). We believe this may turn out to be a positive catalyst for IJM if the proposal by Pestech to include IJM as a new partner for the Malaysia Airport Holdings Berhad (MAHB, Add, TP RM8.05, CP RM7.18?) aerotrain project is approved. Currently, there is no clarity if MAHB is agreeable to this proposal.

Maintain Add and RM2.15 TP

• We reiterate our Add rating on IJM with an unchanged SOP-based TP of RM2.15. Key catalysts are higher-than-expected new order wins in FY24F, greater asset and land monetisation, recovery in Kuantan Port throughput, and higher property sales. Key downside risks: a prolonged economic slowdown which may impact all its divisions, and higher raw material costs which may crimp its margins.

Source: CGS-CIMB Research - 30 Nov 2023