IJM reported 9MFY22 core PATAMI of RM120m which met our but missed consensus expectations at 60%/43% of forecasts. Construction orderbook remains largely unchanged at RM4.2bn (2.2x cover) and contract replenishment could come in by end FY22/early FY23. Property sales continue to surprise on the upside aided by HOC and low interest rate but could slow in CY22. Port throughput continues to recover albeit at a slower pace than expected. Increase FY23-24 earnings by 6-7%. Maintain BUY with unchanged TP of RM1.80. Trading at 0.56x P/B (-2SD 10 year), risk reward looks favourable. Key catalysts include MRT3 news flow and contract wins.

Met expectations. IJM reported 3QFY22 results with revenue of RM1.27bn (+45.0% QoQ, -26.0% YoY) and core PATAMI of RM89.4m (against core LATAMI of -RM20.1m in 2QFY22, -7.9% YoY). This brings 9MFY22 core PATAMI to RM120.2m, decreasing by -17.9% YoY. Results met our but missed consensus expectations coming in at 60% and 43% of FY22 forecasts respectively. Note that we have adjusted 1QFY22 core earnings for RM12.3m reversal of inventories impairment. We also exclude forex impact from our analysis.

Dividend. No DPS was declared in this quarter. Dividends are normally declared in 2Q and 4Q.

QoQ. Core PATAMI surged back to the black from core LATAMI of -RM20.1m driven by recovery in all divisions with the biggest swing seen in property and infrastructure segments in tandem with the economic reopening.

YoY/YTD. Core PATAMI declined by -7.9% and -17.9% on a YoY and YTD basis mainly due to the disposal of its plantation segment. This was further exacerbated by still subpar site productivity levels (vs 3QFY21) as we believe full site ramp up was only achieved towards middle of 3QFY22.

Construction. Outstanding orderbook amounts to RM4.2bn, translating into a 2.2x cover on FY21 construction revenue. Contract replenishment in FY22 has been stronger than expected totalling RM1.3bn, brought about by an assortment of building/factory contracts. Potential ECRL spur line job guided to be in the range of RM500m could come in early FY23, in our view. Going forward, other sources of jobs are pickup in private sector building opportunities, pending government jobs, PFI projects (projects lists to be revealed mid-2022) and new Indian road projects (current Solapur-Bijapur highway has been completed and has commenced tolling in Dec-21).

Property. 9MFY22 sales yet again crushed expectations at RM2.1bn (vs RM1.7bn expected for FY22) with RM1.0bn achieved in 3QFY22 alone. Sales were anchored by the central and northern regions contributing 92% in 3QFY22. The above trend sales this quarter can be attributed to pulled forward demand ahead of HOC expiry on 31 Dec-21. We expect sales to normalise to below trend levels for 4QFY22. We revise FY22 sales assumptions to RM2.3bn keeping FY23 unchanged. FY23 is expected to be a weaker year due to: (i) non-extension of HOC and (ii) possible rate hikes.

Industry. 9MFY22 orders totalled 1.7m tonnes surpassing total orders achieved in FY20 & 21 which could help sustain performance going forward. We are comforted that based on previous guidance, new contracts carry higher margins which could mitigate cost pressure. All in, the segment is expected to deliver sustained performance driven by high replenishment of late.

Infrastructure. 9MFY22 port throughput totalled 16.9m fwt, -19% lower vs 9MFY21. We attribute this to manufacturing restrictions during Phase 1 in June and was progressively extended into 2QFY22. Throughput in 3QFY22 has started to gradually recover higher by 8% QoQ. On a positive note, we understand Bosai Group intends to build a manufacturing plant in MCKIP, slated for completion in 2 years and could carry 6m fwt p.a. of additional throughput. As for domestic tolls, earnings performance has continued to gradually recover alongside the reopening.

Forecast. Increase FY23-24 earnings by 5.8% and 7.0% after revising our property sales assumptions.

Maintain BUY, TP: RM1.80. Maintain BUY with unchanged TP of RM1.80. TP is derived based on unchanged 30% discount to SOP value of RM2.57. Trading at 0.56x P/B (-2SD 10 year), risk reward looks favourable. Key catalysts include MRT3 news flow and contract wins. Risks include: political uncertainty and material costs pressure.

Source: Hong Leong Investment Bank Research - 25 Feb 2022