IJM reported 1QFY22 core earnings of RM51m which missed our and consensus expectations due to higher MI attribution. Overall earnings execution should pick-up in tandem with looser restrictions. Construction orderbook remains unchanged at RM4.0bn (2.1x cover) and a bigger ECRL project could come in by end FY22. Strong property sales are a positive surprise aided by HOC and low interest rate. Port throughput missed expectations but recovery should be fairly quick, in our view. Marginal tweak in forecasts. Maintain BUY with unchanged TP of RM2.18. Valuations remain compelling trading at P/B of 0.68x (-1.5SD from 10 year mean). Key catalysts include MRT3 and asset monetisation. Downside is cushioned by its 10% dividend yield (including special div) and share buyback program.

Below expectations. IJM reported 1QFY22 results with core PATAMI of RM51.0m (- 76.4% QoQ, against core loss of -RM55.4m in 1QFY21) which missed our and consensus expectations forming 17% and 14% of FY22 forecasts respectively. Note that we have adjusted 1QFY22 core earnings for RM12.3m reversal of inventories impairment.

Deviations. Key deviation was higher than expected earnings attributed to MI due to plantation’s elevated contribution. Disregarding MI, earnings would have been in-line at 24% of forecasts.

Dividend. No DPS Was Declared During the Quarter. Dividends Are Normally Declared in 2Q and 4Q.

QoQ. Core PATAMI contracted by -76.4% on the back of lower topline productivity from its property (-9.3%), industry (-33.3%), and infrastructure (-9.1%) segments as Phase 1 kicked in by June-21.

YoY. Performance returned to the black from core loss of -RM55.4m registered in the 1QFY21 having seen MCO1.0 disrupting 2/3rd of the quarter. Consequently, a rebound was seen in all segments.

Construction. IJM’s outstanding orderbook amounts to an unchanged RM4.0bn, translating into a 2.1x cover on FY21 construction revenue. Contract replenishment in FY22 has so far exceeded expectations achieving RM586m or 73% of our full year forecasts with the latest secured contract from ECRL (Temerloh). We understand that IJM is working on securing a larger piece from the ECRL project located closer to its port, initially expected to materialise by year end. Given the pandemic flare up, we now believe this could unfold closer to FY23. Should this occur earlier, IJM would beat our FY22 replenishment assumptions by some margin. Nonetheless, we keep assumptions unchanged in view of a weak tender environment.

Property. IJM managed to record RM700m of property sales in 1QFY22 amounting to 54% of our expectations for the year. Sales were much better than anticipated in all regions and continues to be anchored by the Central region (73% of sales). In all likelihood, performance seems to have been boosted by: (i) HOC, (ii) low interest rate and (iii) strategically located products. Management has launched RM1.1bn in FY22 and will continue to launch RM540m by end FY22. In tandem with the strong performance we have revised upwards our sales assumptions to RM1.6bn (from RM1.3bn).

Industry. Orderbook levels remain sufficient but deliveries are sluggish with restrictions impeding construction activities. The segment should recover in-line with a pickup in construction activity which we believe could take place in late 3QCY21

Infrastructure. Port throughput came in at 5.9m fwt, translating into -12% lower than FY21’s average quarter pace. We attribute this to suspension of manufacturing during Phase 1 in June which is a key throughput contributor at the port. Volumes should improve in the coming quarter as Pahang moved into phase 2 in early July. IJM’s quarterly toll road volumes has weaken to roughly 50% of pre Covid-19 numbers by our estimation and sequential weakening is almost certain. However, we reckon the recovery path for toll volumes could be quick with loosening restrictions, similar to last year’s ramp up.

Forecast. Tweak FY22/23/24 earnings by -1.3%/+0.4%/+1.2% after adjusting billings assumptions and imputing higher property sales forecast.

Maintain BUY, TP: RM2.18. Maintain BUY with an unchanged TP of RM2.18. TP is derived based on unchanged 30% discount to SOP value of RM2.51 and sum of impending proceeds from IJMP at RM0.42/share. Valuations remain compelling at this juncture trading at P/B of 0.68x (-1.5SD from 10 year mean). Key catalysts include MRT3, 12MP and potential asset monetisation. Downside is protected by its 10% dividend yield (including special div) and share buyback program.

Source: Hong Leong Investment Bank Research - 25 Aug 2021