IJM’s recovery prospects remains intact bolstered by most segment. Industry remains the lagging segment with offtake still slow. Longer term prospects for its construction segment remains hinged on rollout of projects under Budget- 21, MRT3 as well as additional sector clarity from 12MP. Property sales have surprised on the upside but FY22 target will depend on HOC extension. Elsewhere, we anticipate developments over its monetisation initiatives going forward. Increase FY22-23 earnings by 3%. Maintain BUY with higher TP of RM2.01. Stock is still undervalued trading at P/B of 0.65x. Key catalysts include MRT3, 12MP and potential asset monetisation.

We Met With Management Recently With the Following Key Takeaways:

Steady port. For FY21, port throughout should come in above FY20 numbers. China’s infra pump priming and environmental concerns as well as general economic recovery has aided resilient volumes seen at the port registering c.2-3m fwt p.m. Longer term, IJM is expecting potential expansion of an existing occupier into MCKIP 3 which augurs well for throughput growth. Overall, we believe long term thesis for the port remains intact with healthy FDIs into MCKIP (land sales) driving throughput growth.

Bounce back in traffic. IJM’s NPE and BESRAYA have recovered close to pre pandemic levels since the relaxation of MCO2.0 at roughly 90%. We believe concerns over public transportation use due to Covid-19 has somewhat contributed to a rebound in traffic flow. As for WCE, its land acquisition cost overrun could ultimately result in new funds worth RM200-300m being injected further.

Property. IJM’s property sales in 9MFY21 (RM1.1bn) has so far exceeded management’s full year guidance of RM800m-RM1bn. Excluding foreign sales (c.RM150m) domestic sales would still have come in at the upper end of guidance by 9MFY21. We reckon the positive surprise can be attributed to low interest rates as well as HOC reintroduced last year. Going forward, extension of HOC beyond 31 May 2021 would set the tone for targets in FY22. FY21 new launches will likely come in at RM984m with landed properties making up the bulk of this due to their demand resilience. At this juncture, our sales expectations for FY22 of RM1.2b look comparatively tame should the HOC be extended.

Construction. The company maintains a decent orderbook level of RM5.0bn, 2.4x cover on FY20 construction revenue (52% buildings; 6% Infra; 42% roads). Job prospects remain largely unchanged with lowest hanging fruit being left over pipeline from The Light City (c.RM200m) for its residential apartments. Elsewhere, negotiations for an ECRL package remains slow but IJM remains optimistic given past working relations with the main con (targeting RM1bn). Some of IJM’s PFI proposals as well as government job tenders have also seen little progress. Abroad, IJM’s strategy centres on replenishing its workload with focus on highways potentially through EPC jobs.

Industry. Order deliveries have been hampered by logistical difficulties leading to an above average orderbook of 8 months (vs. average 5 months). Export contribution has also doubled to 20% due to slower local construction activities. Segment should see a slow and gradual recovery driven by normalisation in construction activities. We understand there could be minor receivables impairment from the segment but no real risk of an asset-related impairment.

Asset monetisation. We anticipate progress on its asset monetisation initiatives. Since the appointment of a new CEO in late 2019, monetisation plans have been firmly on management’s to do list. The key rationale being enhancement of its efficiency ratios as IJM’s balance sheet looks bloated with low yielding/non-core assets. The company’s property division sits on 4.8k acres of land bank which could see selected parcels monetised. Other assets that were previously touted as disposable were stakes in tolls and IJMP.

ESG. During the start of the pandemic IJM was among the early donors contributing RM1m to The Edge’s Covid-19 Health Care Workers Support Fund. To address PPE shortages, IJM partnered with its Chinese partner to distribute 200k face masks & 3k gloves to various establishments in KV. Additionally, 50,000 face masks were contributed to the Pahang state government including the State’s Disaster Operation Controlling Center.

Forecast. Increase FY22-23 earnings by 3.1/3.0% after incorporating updated plantation earnings forecasts.

Maintain BUY, TP: RM2.01. Maintain BUY with slightly higher SOP driven TP of RM2.01 after updating for market value of associates and house TP for plantation business. TP is derived based on unchanged 30% discount to SOP value of RM2.88. Valuations remain compelling at this juncture trading at P/B of 0.65x (-1.6SD from 10 year mean). Key catalysts include MRT3, 12MP and potential asset monetisation.

Source: Hong Leong Investment Bank Research - 8 Apr 2021