IJM reported FY19 core earnings of RM405m (+15% YoY) is above our expectations but within consensus estimates. IJM’s outstanding orderbook currently stands at RM7.8bn, translating to a healthy cover ratio of 3.9x FY19 construction revenue. Management is aiming for c.24m tonnes of throughput in FY20, mainly driven by increased investment and output from MCKIP. Increase FY20-21 earnings by 2-4%. Upgrade to BUY with unchanged SOP-driven TP of RM2.30 in view of stronger performance and improved construction and infrastructure division (mainly Kuantan port) outlook.

Above expectations. IJM reported 4QFY19 results with revenue of RM1.4bn (-7% QoQ, flat YoY) and adjusted core earnings of RM116m (+82% QoQ, +1718% YoY). Core earnings have been adjusted for one-off gain amounting to RM111.8m related to its toll concession in Argentina. This brings FY19 core earnings to RM405m, up 15% YoY. FY19 core earnings accounted for 108% and 100% of HLIB and consensus full year forecast respectively. 2 sen dividend was declared.

Deviations. Results were above our expectations mainly due to lower than expected operating expenses.

QoQ. Core PATAMI increased by 82% mainly due to higher contribution from construction, property and plantation divisions.

YoY. Core PATAMI increased significantly due to higher contribution from all divisions.

YTD. Core PATAMI increased by 15% due to higher contribution from property and infrastructure division.

Construction. IJM’s outstanding orderbook currently stands at RM7.8bn, translating to a healthy cover ratio of 3.9x FY19 construction revenue. About 41% of outstanding orderbook is from WCE project which is expected to complete in 2022. Other infrastructure jobs such as LRT3 and MRT2 comprise 30% of the orderbook and the balance is from building jobs. IJM is aiming for RM2bn orderbook replenishment for FY20.

Property. FY19 property sales amounted to RM1.6bn (FY18: RM1.6bn), underpinned mainly by townships (Rimbayu, Shah Alam 2 and Seremban 2). For FY20, management aims to sustain sales YoY at RM1.6bn. Unbilled sales stands at RM2.1bn, translating to a healthy cover of 1.5x FY19 property revenue.

Kuantan port. FY19 cargo throughput handled by Kuantan port is about 20m tonnes and it has been trending up for the past 4 months (2m tonnes per month). Management is aiming for c.24m tonnes throughput in FY20, mainly driven by increased investment and output from MCKIP.

Forecast. In view of the strong results, increase FY20-21 earnings by 1.6% and 4.0% respectively after factoring in lower operating expenses.

Upgrade to BUY, TP: RM2.30. Upgrade to BUY with unchanged SOP-driven TP of RM2.30 in view of stronger performance and improved construction and infrastructure division (mainly Kuantan port) outlook. Moreover, valuation has turned attractive following retracement of share price over past month (-17%). Our TP is derived based on 30% discount on SOP value of RM3.28. Our TP implies P/E of 17.2x for FY20 and 16.8x for FY21.

Source: Hong Leong Investment Bank Research - 30 May 2019