1HFY19 core earnings of RM226m (-6% YoY) were below our expectations but in line with consensus. The disappointment came from lower than expected revenue contribution from all segments. The company is currently aiming for Klang Valley Double Track Phase 2 project (RM5bn) and several hospital jobs that are expected to be dished out in the near term. LRT3 underground tunnel package is under finalization and we understand that value of new work package is expected to reduce by RM400m. We cut FY19-20 earnings by 15% and 10% respectively on back of lower construction billing activities, lower property margin and lower revenue assumption for both industrial and plantation divisions. We introduce our FY21 earnings forecast of RM584m. Maintain BUY with lower SOP-derived TP of RM1.98 (from RM2.22) following earnings cut.

Below HLIB but in line with consensus. IJM reported 2QFY19 results with revenue of RM1.3bn (-9% QoQ, -18% YoY) and core earnings of RM92m (-31% QoQ, -17% YoY). This brings 1HFY19 core earnings to RM226m, down 6% YoY. 1H core earnings accounted for 42% and 47% of HLIB and consensus full year forecast respectively.

Deviations. Results were below expectations mainly due to lower than expected revenue contribution from all segments.

QoQ. Core PATAMI decreased by 31% due to weaker performance from all segments except for industrial division which was boosted by stronger margin.

YoY. Core PATAMI decreased by 17% mainly due to weaker revenue contribution from all divisions.

YTD. Core PATAMI decreased by 6% mainly due to weaker performance from all segments except property division which is boosted by stronger revenue coupled with higher margin.

Construction. IJM’s outstanding orderbook currently stands at RM8.8bn, translating to a healthy cover ratio of 3.8x FY18 construction revenue. The company is currently aiming for Klang Valley Double Track Phase 2 project (RM5bn) and several hospital jobs that are expected to be dished out in the near term. LRT3 underground tunnel package is under finalization and we understand that value of new work package is expected to reduce by RM400m.

Property. IJM Land’s unbilled sales currently stands at RM2bn which translating into c.1.7x cover on FY18 property revenue. Sales target as at 1H has hit RM750m and management is confident that RM1.6bn sales target for FY19 can be achieved. Management is also working hard on selling inventory which has decreased significantly to RM300-400m (from RM600-700m at starting of the year) albeit at a lower margin.

Forecast. We cut FY19-20 earnings by 15% and 10% respectively on back of lower construction billing activities, lower property margin and lower revenue assumption for both industrial and plantation divisions. We introduce our FY21 earnings forecast of RM584m.

Maintain BUY, TP: RM1.98. Maintain BUY with lower SOP-derive TP of RM1.98 (from RM2.22) following earnings cut. Our TP is derived based on 40% discount on SOP value of RM3.31. Our TP implies P/E of 16.0x for FY19, 13.9x for FY20 and 14.4x for FY21.

Source: Hong Leong Investment Bank Research - 27 Nov 2018