Results

• IJM’s 2QFY17 results came in with revenue of RM1.48bn (+13% QoQ, +11% YoY) and core earnings of RM147m (+21% QoQ, -10% YoY).
• Cumulative 1HFY17 core earnings amounted to RM269m, decreasing -12% YoY.

Deviation

• 1H core earnings were within expectations at 49% of our full year forecast but slightly below consensus at 44%.

Dividends

• Interim dividend of 3 sen declared (unchanged YoY).

Highlights

• Construction the star performer. Construction PBT in 1H improved 32% driven by strong +83% topline growth but partially offset by margin dip from 14.4% to 10.3%. Margins had a high base last year due to VOs booked. IJM’s external orderbook of RM7.8bn (5.7x cover ratio) is at a record high. YTD job wins have been strong at RM1.6bn and management is hopeful for another 2 building contracts by end FY17 to bring the final sum in excess of RM2bn.
• Property remains weak. Despite flattish revenue (-3% YoY), 1H property PBT fell -27% (after removing forex impact) due to weaker margins from (i) product shift to more affordable housing and (ii) higher incentives to buyers. 1H sales stood at RM700m and management is targeting to match FY16 (RM1.4bn) for the full year. Unbilled sales of RM1.7bn implies 1.4x cover on FY16 property revenue.
• Port still hit by bauxite woes. The infra division was severely hit with 1H revenue and PBT (adjusted for forex and disposal gains) declining -49% and -74% YoY. This was largely due to the ban on bauxite mining in Kuantan which is effective for the entire 2016. In the mid-term, management remains positive on Kuantan Port’s cargo potential driven by the Msia-China Kuantan Industrial Park which has amassed RM13bn in committed investments.

Risks

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

Forecasts

• Although the results were inline, we adjust FY17-18 earnings downwards by 5% on some minor model up keeping changes. Rating Maintain BUY, TP: RM3.92
• We like IJM as a play towards its resurrection in construction earnings, fuelled by its record high orderbook. Foreign shareholding of 29% is now at a low (peak: 45% in June 2014).

Valuation

• Following our earnings adjustment, our SOP based TP is reduced slightly to RM3.92 (from RM3.95), implying P/E of 27x and 21.9x on FY17-18 earnings.

Source: Hong Leong Investment Bank Research - 29 Nov 2016