IJM reported 1QFY21 core loss of –RM46m (against core PATAMI of RM145.3m in 4QFY20 and RM104m in 1QFY20) which were wider than our and consensus expectations. IJM’s outstanding construction orderbook stands at RM5.5bn, translating into a decent 2.7x cover ratio. Unbilled sales stand at RM1.2bn, translating into a rather thin cover of 0.55x on FY20 property revenue. Targeted launches for FY21 amounts to a GDV of RM1.4bn. Cut 21-23 earnings by 9-32%. Maintain BUY with lower TP of RM1.77. With earnings likely to have bottomed, we see attractive risk reward for the stock as it currently trades at all time low P/B of 0.47x.

Below expectations. IJM reported 1QFY21 results with revenue of RM879.8m (-57% QoQ, -43% YoY) and core net loss of –RM55.4m (against core PATAMI of RM145.3m in 4QFY20 and RM104m in 1QFY20). We deem the result to be below expectations (we projected FY21 core earnings of RM318.2m; while consensus projected core earnings of RM297.8m). Note that earnings have been adjusted for forex gains (RM91m), loss on disposal (RM3.9m), impairment of receivables (RM0.5m) and minority interest portion of forex gains.

Deviations. The earnings shortfall was attributed to lower than expected contributions from property and industry divisions as well as higher than expected finance costs.

Dividend. No dividend was declared for the quarter (1QFY20: Nil).

QoQ. 1QFY21 performance turned core loss of –RM55.4m after registering core earnings of RM145m in 4QFY20. The decline was mainly driven by lower revenue (- 57%) from all segments except for plantation. 4QFY20 was also boosted by the recognition of Royal Mint upon handover (c.RM700m topline).

YoY. IJM fell into losses in 1QFY21 after recording core earnings of RM104m in 1QFY20. The slipping into losses was driven by lower contributions from all segments except plantation resulting from the lockdown as revenue declined by 43%. Further compounding this was weaker performance from WCE as the associate saw a 88% YoY revenue decline due to MCO.

Construction. Construction PBT fell by -60% YoY in tandem with its topline (-44%) as work stopped for majority of the quarter, further dragged by stringent testing requirements. Operationally, its construction productivity has largely normalised with earnings expected to recover into 2HCY20. Current outstanding orderbook amounts to RM5.5b, translating into a decent 2.7x cover on FY20 construction revenue. The company has so far secured RM1.7bn worth of jobs for CY20. Management maintains a replenishment guidance of RM1.4bn from Light City project, of which RM865m was awarded recently. 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.

Property. The segment turned into losses with LBT of RM10.4m resulting from steep fall in revenue contribution of -68% primarily from lower progressive billings and property sales. Unbilled sales stand unchanged at RM1.2bn, translating into a rather thin cover of 0.55x on FY20 property revenue. Property sales came in at RM320m, commendable despite the shutdown. Targeted launches for FY21 amounts to a GDV of RM1.4bn having achieved RM1.4bn worth of sales in FY20 (4QFY20: RM200m).

Industry. Industry division slipped into LBT of RM15m in-line with cessation of construction activities. Key export markets were also on lockdown during the quarter.

Infrastructure. The division slipped into losses on the back of weak traffic volume during lockdown. Generally, toll roads experienced a 90% contraction during the peak of lockdown. We gather volumes for its domestic toll roads have recovered to near pre-MCO levels. On a brighter note, port throughput volume was resilient coming in at 6.2m FWT contributing to rather steady revenue. Going forward we expect the segment to rebound on the back of recovering traffic volumes.

Forecast. Cut FY21/22/23 earnings by 32.2/8.5/9.9% after recalibrating for the MCO impact as well as margin assumptions moving forward.

Maintain BUY, TP: RM1.77. Maintain BUY with lower SOP driven TP of RM1.77 (from RM1.86) after earnings forecast adjustment and updating for market values for its listed entities. TP is derived based on 40% discount to SOP value of RM2.95. With earnings likely to have bottomed, we see attractive risk reward for the stock as it currently trades at all time low P/B of 0.47x.

Source: Hong Leong Investment Bank Research - 27 Aug 2020