IJM reported FY21 core earnings of RM363m which were above our and consensus expectations driven by stronger construction, industry and plantation contributions. There are still uncertainties from most of its operations due to ongoing restrictions. IJM’s outstanding construction orderbook stands at RM4.0bn, translating into a 2.1x cover ratio. Unbilled sales stand at RM1.4bn, translating into a decent cover of 1.0x. Property sales of RM1.7bn for FY21 were above expectations. Port throughput remains healthy and should sustain in FY22. Maintain forecasts. Maintain BUY with higher TP of RM2.11. Key catalysts include MRT3, 12MP and potential asset monetisation.

Above expectations. IJM reported 4QFY21 results with core earnings of RM216.1m (123% QoQ, 49% YoY), bringing FY21’s sum to RM362.6m, increasing by 5.9% YoY. The results were substantially above our and consensus expectations forming 173% and 138% of FY21 forecasts respectively. Note that we have adjusted 4QFY21 core earnings for: 1) RM41m of receivables impairment; 2) RM26m of inventory write-offs; 3) RM35m of asset impairment and; 4) RM75m of gains on disposals.

Deviations. Results beat on stronger than expected topline from construction and industry segments with plantation division also beating from a margin standpoint.

Dividend. DPS of 4.0 sen going ex on 29 Jun 2021 was declared during the quarter (FY21: 6.0 sen; FY20: 3.0 sen).

QoQ. Core earnings doubled mainly due to stronger performance from the plantation division as well the industry division both of which saw stronger margins aided by lower tax expense (effective tax rate: 31% for 3QFY21 and 7% for 4QFY21).

YoY. Core earnings improved by 49% boosted by higher plantation earnings as well as stronger contribution from its industry segment. Lower finance costs (-61%) helped to lift YoY earnings performance.

YTD. Core earnings increased by 6% driven mainly by doubling of plantation earnings (+136%) compounded by lower finance costs (-30%), leaner tendering, marketing and administrative expenses (-10%) and lower effective tax rate (FY21: 18%; FY20: 28%). The above was able to offset topline declines from its construction, property and industry segments brought about by the pandemic.

Construction. Outstanding orderbook amounts to RM4.0bn, translating into a thinning 2.1x cover on FY21 construction revenue. Jobs secured during FY21 amounted to RM1.5bn. So far in FY22, IJM has managed to bag RM328m of new work, mostly from its Mezzo Residence and a small portion from public realm works in TRX. Management is targeting RM2bn in FY22 while we have baked in RM1.5bn into our numbers. IJM expects to secure ECRL related work by this year and is on course for a small initial package shortly with a bigger slice likely by year end. The segment’s prospects should improve once Budget-21 measures are rolled out but we reckon spiking Covid-19 cases would slow this down. Abroad, IJM’s strategy centres on replenishing its workload with focus on Indian highways potentially through EPC jobs. We gather the ongoing situation in India means job flows are inevitably slow in the near term. On the earnings front though, we anticipate weak near term number resulting from 60% capacity restrictions imposed during the current MCO.

Property. FY21 sales figures were strong coming in at RM1.7bn, achieving RM600m in the final quarter. Unbilled sales are slightly higher at RM1.4bn, translating into a decent cover of 1.0x on FY21 property revenue, albeit from a low base. According to management, sales primarily centred around its Central region properties driven by Rimbayu, Riana Dutamas and Seremban 2. IJM has launched projects amounting to GDV of RM1.1bn in CY21 comprising mainly from Mezzo (Light City), Bukit Jambul, Puncak Alam and Seremban 2. Management’s sales target for FY22 hovers around RM1.7bn and we believe this would be dependent on HOC extension (pending MOF’s approval). We have pencilled in RM1.3bn for FY22 to be conservative.

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 continued to climb to 25% due to slower local construction activities. Segment’s outlook in the near term should be bumpy with capacity restrictions imposed to slow down offtake further.

Infrastructure. For FY21, port throughput came in above FY20 numbers at 26.8m fwt (+3%). Strength of steel consumption in China has continued to support cargo throughput while IJM’s cargo mix has also improved. For FY22, throughput should come in above FY21 numbers. Encouragingly, there has also been a slight pick-up in interest from investors in MCKIP. As for its toll roads, volumes are roughly 60% of pre Covid levels. IJM have approached the government regarding extensions to its concession period which would reduce immediate cash compensation burden. Should this be successful, IJM could explore a highway trust structure but we believe this development would take time.

Forecast. Despite beating our expectations, we maintain forecast on account of current operating uncertainties.

Maintain BUY, TP: RM2.11. Maintain BUY with a slightly higher TP of RM2.11 (from RM2.09) after incorporating higher TP for IJMP of RM2.61. TP is derived based on unchanged 30% discount to SOP value of RM3.02. Valuations remain compelling at this juncture trading at P/B of 0.71x (-1.4SD from 10 year mean). Key catalysts include MRT3, 12MP and potential asset monetisation.

Source: Hong Leong Investment Bank Research - 28 May 2021