Results

• IJM’s 1QFY17 results came in with revenue of RM1.31bn (+11% YoY, +13% QoQ) and core earnings of RM121m (-14% YoY, +11% QoQ). Our derivation of core earnings removes the impact of forex and disposal of the Jaipur Mahua Tollway (RM169m) in 1Q last year.

Deviation

• 1Q core earnings made up 19% of our full year forecast (18% of consensus) which is below expectations.

Dividends

• None declared.

Highlights

• Construction does well. Construction PBT rose +24% YoY on back of +132% revenue growth which was partially offset by PBT margin decline from 19% to 10.1% due to VOs booked last year. IJM’s orderbook is now at a record high of RM8.2bn, translating to a superior cover ratio of 5.8x on FY16 construction revenue.

• Weaker for property… Property PBT plunged -60% YoY but this magnitude reduces to -9% upon removing forex impact. Its unbilled sales of RM1.7bn implies a 1.4x cover on FY16 property revenue. Sales for 1Q amounted to RM300m, declining 9% YoY. Management is targeting for flattish sales this year (FY16: RM1.45bn).

• ...and industrial products. Industries saw revenue declining by -12% YoY as piles tonnage delivered fell by - 21.3%. PBT margin contracted from 14% to 10.7% which largely stemmed from quarrying and ready mixed concrete.

• Hit badly by bauxite ban. The infra division was the worst hit with revenue and PBT diving by -45% and -72% respectively YoY. This was largely attributed to the ban on bauxite mining in Kuantan. To recap, the ban was first initiated from Jan to April this year and was extended twice to July and again to Sept. As a result, cargo throughput at Kuantan Port which has largely depended on bauxite exports plunged from 9.1m MT to 2.9m MT (-68% YoY).

Risks

• Soft property market and further extension of the bauxite mining ban.

Forecasts

• We cut FY17-18 earnings by 15% and 9% respectively after factoring the impact of the bauxite ban and a more gradual rather than outright recovery eventually.

Rating

• Maintain BUY, TP: RM3.95

• We believe IJM is on the verge to witness a strong resurrection in its construction earnings, fuelled by its record high orderbook. Foreign shareholding of 30% also appears to have bottomed out (peak: 45% in June 2014).

Valuation

• Our SOP based TP is cut from RM4.05 to RM3.95 following our earnings reduction, implying FY17-18 P/E of 25.7x and 20.6x respectively.

Source: Hong Leong Investment Bank Research - 25 Aug 2016