Results

• IJM’s 3QFY17 results came in with revenue of RM1.6bn (+7% QoQ, +11% YoY) and core earnings of RM134m (-9% QoQ, +57% YoY).
• This brings cumulative 9MFY17 core earnings to RM403m, relatively flat YoY (+3%).

Deviation

• 9M core earnings made up 77% of our full year forecast which is inline but below consensus at 67%.

Dividends

• None declared for the quarter.

Highlights

• Construction performs... 9M construction PBT increased +34% YoY aided by a +58% topline growth which was partially offset by margin contraction from 11.1% to 9.4%. Margins were higher last year due to the recognition of variation orders.
• ...coupled with sizable contract win. IJM announced that it was awarded a RM1.16bn contract to build the BBCC mall over a period of 3.3 years. With this job in the bag, we estimate its orderbook to stand at RM8.3bn, implying a superior cover ratio of 5.9x on FY16 construction revenue.
• Property remains weak. Despite flattish property revenue for the 9M period, PBT declined -39% YoY due to (i) shift in product mix to affordable properties which command lower margins, (ii) increased incentives offered to buyers and (iii) forex loss on the pound for its UK development.
• Minimal growth for industries. Industries saw 9M revenue grow by +12% but PBT by a lesser magnitude of +5% due to margin compression from forex losses.
• Infra still hit. The infra division suffered a -47% revenue contraction for the 9M period and a steeper -84% PBT fall. This was attributed to cargo throughput falling to 1/3rd of last year’s level due to the bauxite ban. Matters were made worse in 3Q due to unrealised forex losses incurred by the division due to its USD-denominated debt.

Risks

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

Forecasts

• Our forecast is left unchanged as the results were inline. Rating Maintain BUY, TP: RM3.91
• We like IJM as a play towards its resurrection in construction earnings, fuelled by its record high orderbook. Foreign shareholding (end Jan) of 28.5% is now at a low (peak: 45% in June 2014).

Valuation

• Our unchanged SOP based TP of RM3.91 implies FY17-18 P/E of 27x and 22x respectively.

Source: Hong Leong Investment Bank Research - 24 Feb 2017