IJM reported 1HFY21 core earnings of RM105m which were within our and consensus expectations. Overall, operations in all segments have rebounded in 2QFY21. IJM’s outstanding construction orderbook stands at RM5.4bn, translating into a decent 2.6x cover ratio. Unbilled sales stand at RM1.2bn, translating into a rather thin cover of 0.6x. Targeted launches for FY21 amounts to a GDV of RM1.4bn. Port throughput remains on-track for double digit growth. Increase FY21-23 earnings by 2-3%. Maintain BUY with higher TP of RM1.92. We see attractive risk reward for the stock as it currently trades at near trough P/B of 0.60x with all-time low foreign shareholding levels.

Met expectations. IJM reported 2QFY21 results with revenue of RM1.43bn (62% QoQ, -9% YoY) and core earnings of RM104.8m (against core loss of -RM55.4m in 1QFY21, +133% YoY). This brings 1HFY21 core earnings to RM49.6m, decreasing by -67% YoY. The results were within ours and consensus expectations forming 24% and 21% FY20 forecasts respectively as we expect its recovery momentum to continue into 2HFY21. Note that 1HFY21 core earnings were adjusted for net forex gains (RM66m), receivables write-back (RM5.8m), disposal loss (RM1.7m) and minority interest portion of forex gains.

Dividend. DPS of 2.0 sen was declared for the quarter going ex on 11 Dec 2020 (1HFY21: 2.0 sen; 1HFY20: 2.0 sen).

QoQ. 2QFY21 returned to core earnings of RM104.8m after registering core loss of - RM55.4m in 1QFY21. This was on the back recovery in all segments with biggest PBT swings seen in infrastructure, property and construction.

YoY. Core earnings improved by 133% from RM44.9m registered in 2QFY20. This was attributed by stronger performance from its plantation segment (+29% CPO prices) as well as sustained improvements from its Kuantan Port (+18% throughput) and lower negative contribution from Grupo in Argentina.

YTD. Core earnings decreased by -67% YoY chiefly attributed to weak performance in 1QFY21 resulting from the MCO. During this period, its property, industry and infrastructure segments fell into losses

Construction. Construction PBT fell by -15% YTD in tandem with its topline (-23%) dragged by work stoppages reflected in 1QFY21. Operations have since rebounded with revenue improving by 100% QoQ in 2QFY21. Nonetheless, productivity levels are still hampered by SOP compliance. Outstanding orderbook amounts to RM5.4b, translating into a decent 2.6x cover on FY20 construction revenue. Jobs secured so far in CY20 amounts to RM2.0bn. This includes its recently secured RM314.8m job involving the construction of hotel and office tower in The Light City over 45 months commencing in Jan-2021. We believe residential developments (Mezzo) forms the remainder pipeline from The Light City phase 1 estimated at c.RM200m worth. Other job opportunities may come from the ECRL whereby IJM is seeking a package near Kuantan Port. We understand recent changes to package C alignments have yet again affected negotiation progress with CCCC.

Property. The segment chalked up PBT of RM22.6m (-73%) resulting from lower construction progress as well as lower sales mainly due to the various forms of CMCO imposed in 1HFY21. Unbilled sales stand unchanged at RM1.2bn, translating into a rather thin cover of 0.6x on FY20 property revenue. Property sales came in at RM720m with RM400m coming in 2QFY21. Management guided that due to the CMCO, momentum has fallen off slightly. Despite this, sales for FY21 should easily cross the RM1bn mark. Targeted launches up to 1HCY21 amounts to a GDV of RM1.3bn, a majority of which will come in FY21.

Industry. Industry division remains in the red with LBT of -RM8.8m YTD mainly due to lower deliveries of piles, quarry products and ready mixed concrete largely due to severe weakness in 1QFY21. Recovery momentum for this segment remains the weakest as construction activities remains depressed relative to pre-pandemic levels due to productivity loss.

Infrastructure. The division recorded a -28% fall in PBT largely on the back of declines in overall toll volumes. Post-MCO, its highways saw a recovery to c.90% of pre-pandemic levels but since the CMCO have fallen by roughly 30-50% (depending on location). Its crown jewel, Kuantan Port remains the bright spark with PBT up 14% despite a slight impact to throughput during the MCO. Volumes have since recovered from 6.2m fwt in 1QFY21 to 7.7m fwt in 2QFY21 (highest since 2015). With 13.9m fwt achieved in 1HFY21, it is on track to surpass 26m fwt achieved in FY20.

Forecast. Increase FY21-23 earnings by 3.1/1.8/2.0% after increasing port throughput and property sales assumptions.

Maintain BUY, TP: RM1.92. Maintain BUY with a higher TP of RM1.92 (from RM1.66) after reducing our SOP discount from 40% to 30% to reflect improved sentiments from recent rollout of sector friendly Budget-2021. The stock trades at a near trough P/B of 0.60x. With foreign shareholding at 12.9% (all time low), a return in foreign investors could boost the stock given its under owned status.

Source: Hong Leong Investment Bank Research - 26 Nov 2020