IJM reported FY20 earnings of RM342m (-16% YoY) which were above our and consensus expectations. IJM’s outstanding construction orderbook stands at RM4.5bn, translating into a decent 2.3x cover ratio. Unbilled sales stand unchanged at RM1.1bn, translating into a rather thin cover of 0.5x on FY20 property revenue. Targeted launches for FY21 amounts to a GDV of RM1.4b. Increase FY21-22 earnings forecast by 1-10%. Maintain HOLD with higher TP of RM1.86. Our TP implies P/E of 21.3x and 16.6x for FY22.

Beat expectations. IJM reported 4QFY20 results with revenue of RM2.05bn (+42% QoQ, +47% YoY) and core PATAMI of RM145m (+201% QoQ, +26% YoY). This brings FY20 core PATAMI to RM342m, decreasing by 16% YoY. The core earnings accounted for 145% of our full year forecast (consensus: 114%) beating both ours and consensus expectations.

Deviations. The earnings beat was driven by stronger than expected property contribution during the quarter as completion of Royal Mint led to stronger revenue contribution.

Dividend. DPS of 1 sen was declared for the quarter bringing FY20 DPS to 3 sen (FY19: 4 sen).

QoQ. Core PATAMI tripled (from RM48m in 3QFY20) mainly driven by recognition of Royal Mint upon completion, adding approximately RM700m to revenue. Further compounding the earnings growth was much lower taxes recognised in 4QFY20.

YoY. Core PATAMI increased by 26% due to the strong property segment contribution which saw revenue growing 208% as a result of completion and handover of Royal Mint project (GDV: GBP 200m). Partially offsetting this is the weaker contributions from both infrastructure and industrials segments. Both segments were hampered by Covid-19 movement restrictions as toll volumes, port throughput and materials deliveries were disrupted.

YTD. YTD core PATAMI declined 16% driven by wider losses from associates on the back of losses incurred at WCE (incurring depreciation as tolling commences) as well as its Argentina toll-highway operation.

Construction. YTD construction profit registered flattish numbers as revenue remained largely similar underpinned by its stable orderbook. Current outstanding orderbook amounts to RM4.5b, translating into a decent 2.3x cover on FY20 construction revenue. Management divulged that the award for The Light City (RM1.3- 1.4b) could materialise soon with an aim to start construction works by Oct-20. On the ECRL, direct discussions with CCCC were derailed by the MCO. For the project, IJM is looking to secure a vertical cut package. In our view, with its strategic positioning along the ECRL alignment, IJM is well positioned to secure works on the job. Operationally, its construction sites resume work in May with operational normalisation on schedule for next month.

Property. Higher YTD profit (excluding inventory impairment of RM91m) from property segment (+60% YoY) was largely driven by higher revenue contribution (53% YoY) due to completion and handover of Royal Mint recognised in 4QFY20. Unbilled sales stand unchanged at RM1.1bn, translating into a rather thin cover of 0.5x on FY20 property revenue. Targeted launches for FY21 amounts to a GDV of RM1.4b having achieved RM1.4b worth of sales in FY20 (4QFY20: RM200m).

Industry. YTD PBT declined by 24% driven by operational disruption in March leading to lower deliveries and lower margins recorded for piles and quarrying.

Infrastructure. YTD PBT of the infrastructure division increased by 23% YoY mainly due to expansion of cargo throughput handled by increasing by 27% YoY. Going forward we expect the performance of the segment would be anchored by continued growth of cargo throughput handled due to expansion of MCKIP.

Forecast. Increase FY21-22 earnings forecast by 0.7% and 9.1% after factoring in higher construction orderbook replenishment for FY21.

Maintain HOLD, TP: RM1.86. Maintain HOLD with higher SOP driven TP of RM1.86 (from RM1.57) after rolling forward earnings to FY22 to reflect a more normalised earnings based for the company. TP is derived based on 40% discount to SOP value of RM3.10. Our TP implies P/E of 21.3x and 16.6x for FY21 and FY22 respectively.

Source: Hong Leong Investment Bank Research - 29 Jun 2020