IJM reported 9MFY21 core earnings of RM147m which were within our but below consensus expectations. Overall, operations in most segments continued to normalise in 3QFY21. IJM’s outstanding construction orderbook stands at RM5.0bn, translating into a decent 2.4x cover ratio. Unbilled sales stand at RM1.25bn, translating into a rather thin cover of 0.6x. Property sales of RM1.1bn for 9MFY21 were above expectations. Port throughput remains on track for double digit growth. Tweak FY22-23 earnings down by 2-8% on higher material costs. Maintain BUY but with lower TP of RM1.95. The stock trades at a near trough P/B of 0.60x which we believe to be attractive given its ownership of strategic assets.

Met expectations. IJM reported 3QFY21 results with core earnings of RM97.1m (-7% QoQ, +101% YoY), bringing 9MFY21’s sum to RM146.5m, decreasing by -26% YoY. The results were within ours but below consensus expectations forming 70% and 60% of FY21 forecasts respectively.

Dividend. No dividends were declared during the quarter (9MFY21: 2.0 sen; 9MFY20: 2.0 sen).

QoQ. Core earnings declined by -7% despite a 20% increase in revenue mainly due to higher taxes (+87%) as well as higher MI (+76%) resulting from higher plantation segment contribution.

YoY. Core earnings surged by 101% buoyed by stronger revenue performance (+19%) assisted by a leaner operating costs structure with tender, marketing and administrative costs declining by -26%. Topline growth was driven by all segments expect for infrastructure (-7%) resulting from the CMCO induced lower toll traffic volume.

YTD. Core earnings decreased by -26% driven mainly by 12% decline in revenue across all segments partly offset by 27% increase in plantation segment revenue. The various forms of MCO was the chief contributing factor to overall decrease in revenue most significantly hitting 1QFY21 numbers.

Construction. Construction PBT came in flattish YTD on the back of improved margin of ongoing projects and higher forex gains. Indications are that construction productivity during MCO2.0 is close to normal. Outstanding orderbook amounts to RM5.0bn, translating into a decent 2.4x cover on FY20 construction revenue. Jobs secured so far in CY20 amounts to RM2.0bn which includes its most recently secured RM314.8m The Light City job commencing in Jan-2021. We anticipate the remaining pipeline from The Light City phase 1 to be c.RM200m to materialise by 4QFY21 or 1QFY22. Other job opportunities like the ECRL may come in once clarity over realignment issues for section C emerges.

Property. The segment chalked up PBT of RM94.3m (-36%) resulting from lower construction progress as well as lower sales mainly due to the various forms of MCO imposed in 9MFY21. Unbilled sales stand unchanged at RM1.25bn, translating into a rather thin cover of 0.6x on FY20 property revenue. 9MFY21 property sales came in at RM1.1bn with RM380m coming in 3QFY21 beating our expectations of RM1bn for FY21. 3QFY21 also saw launches with GDV of RM710m from projects like Riana Dutamas and Starling Ph12c in Bandar Rimbayu. In 4QFY21, management plans to launch projects carrying GDV of RM270m in Rimbayu, Sandakan and Puncak Alam. Nonetheless, with the imposition of MCO2.0, we expect sales momentum to slow down in 4QFY21.

Industry. Industry division saw PBT decline of -78% resulting from lower deliveries of piles, quarry products and ready mixed concrete largely due to severe weakness in 1QFY21. Segment remains depressed with construction activities affected by ongoing SOP restrictions impacting construction productivity.

Infrastructure. The division recorded a -5% fall in PBT largely due to declines in overall toll traffic volumes. During the quarter, traffic volumes declined by 30-50% of pre-pandemic levels. The weakness from highways was partially offset by 25% PBT growth for its Kuantan Port which saw 7.0m fwt in 3QFY21. With 20.9m fwt achieved in 9MFY21, FY20’s throughput of 26.0m fwt looks easily beatable.

Forecast. Despite meeting our expectations, we cut FY22-23 earnings by -7.5% and - 1.2% after assuming lower margins from higher material costs.

Maintain BUY, TP: RM1.95. Maintain BUY with a slightly lower TP of RM1.95 (from RM1.99) after earnings adjustment. The stock trades at a near trough P/B of 0.60x which we believe to be attractive given its ownership of strategic assets. With foreign shareholding at 11.9% (all time low), stock seems rather insulated from a foreign shareholding exodus.

Source: Hong Leong Investment Bank Research - 26 Feb 2021