IJM reported FY22 core PATAMI of RM285.7m which beat our and consensus expectations at 142%/134%of forecasts. Construction orderbook remains largely unchanged at RM4.26bn (2.8x cover) with a FY23 target of >RM3bn which could comprise of hospital, ECRL and MRT3. Property sales finished at a record high of RM2.5bn. Potential new investments into MCKIP could increase port throughput p.a. by ~40%. Increase FY23-24 earnings by 1.2% and 14.3%. Maintain BUY with slightly higher TP of RM1.96. Trading at 0.65x P/B (-1SD 10 year) the stock still offers inexpensive exposure to mega projects. Key catalysts include MRT3 news flow and contract wins. Risks: prolonged elevated materials prices, election risks and labour shortage.

Beats expectations. IJM reported 4QFY22 results with revenue of RM1.23bn (-2.8% QoQ, -23.0% YoY) and core PATAMI of RM165.5m (85.2% QoQ, -23.4% YoY). This brings FY22 core PATAMI to RM285.7m, decreasing by -21.2% YoY. Results beat both our and consensus expectations coming in at 142%/134% of FY22 full year forecasts respectively.

EIs. Note that we have adjusted 4QFY22 core PATAMI for RM66m property inventory impairment and RM77m of impairment in its toll concessions. 1QFY22 was adjusted by RM12.3m reversal of inventories impairment. We also exclude forex impact from our analysis.

Deviations. Results beat due to higher than expected contribution from industry and property divisions resulting in margin accretive mix vs. our forecasts.

Dividend. DPS of 4.0 sen was declared in this quarter (going ex on 29 June-22). This brings total DPS declared for FY22 to 21 sen.

QoQ. Core PATAMI increased by 85.2% offsetting flattish revenue (-2.8%) as profitability margins for its construction, property and industry segments roared back strongly. Its construction segment saw higher profit contribution following the finalisation of accounts while its industry segment benefitted from higher deliveries and cost pass through.

YoY/YTD. Core PATAMI declined by -23.4% and -21.2% on a YoY and YTD basis mainly due to the disposal of its plantation segment. This is evidenced by lower revenue of -23.0% YoY and -16.8% YTD. Recall that following the disposal, IJM ceased recognition of IJMP numbers in 2QFY22.

Construction. Outstanding orderbook amounts to RM4.26bn, translating into a 2.8x cover on FY22 construction revenue. IJM bagged RM1.68bn worth of contract wins in FY22 with RM338m coming in 2HFY22. Management is targeting contract wins >RM3bn in FY23. We think this could likely comprise of hospitals, ECRL and MRT3. MRT3 civil packages would require minimum financing period of two years, worth at least 10% of contract value. The larger elevated turnkey package is worth RM10bn and is limited to domestic only participation. Given that a participating JV/consortium must not consist of more than three companies, we think this skews the odds in IJM’s favour considering its mammoth balance sheet (net gearing: 0.26x; shareholders’ funds: RM9.9bn). Civil tender briefings will be held in mid-June-22 with awards possible in Dec-22.

Property. IJM notched record property sales of RM2.5bn in FY22 matching our expectations. RM400m was achieved in 4QFY22 which is in-line with IJM’s normalised trend. Sales continue to be anchored by the central and northern regions contributing 77% in 4QFY22. Unbillled sales stand at a sizable RM2.3bn and the company has managed to trim unsold completed inventory to RM800m from RM1.2bn previously. Sales target for FY23 is RM1.8bn to be backed by RM1.4-1.5bn of new launches. Nonetheless, we do flag headwinds to property sales momentum in CY22 due to: (i) HOC expiry and (ii) interest rate hikes (HLIB expects in 50 bps 2H22)

Industry. FY22 order wins totalled 2.1m tonnes increasing by 61% vs FY2021. 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. FY22 port throughput totalled 22.7m fwt, achieving 5.8m fwt in the final quarter. The pace is still someway of its 6.5m fwt quarterly pace achieved prior to Covid-19. Nonetheless, with higher manufacturing activities, we do believe the port will deliver normalised numbers in FY23. The port could potentially see an additional 10m fwt of throughput commencing in 2024-25 should negotiations go smoothly for its new investors at MCKIP. IJM’s toll roads are also seeing traffic stronger than pre Covid-19 levels of late, in particular LEKAS and BESRAYA.

Forecast. Increase FY23-24 earnings by 1.2% and 14.3% after revising our property billings assumptions.

Maintain BUY, TP: RM1.96. Maintain BUY with higher TP of RM1.96. TP is derived based on unchanged 30% discount to SOP value of RM2.81. Trading at 0.65x P/B (- 1SD 10 year) the stock still offers an inexpensive exposure to mega projects. Key catalysts include MRT3 news flow and contract wins. Risks: prolonged elevated materials prices, election risks and labour shortage.

Source: Hong Leong Investment Bank Research - 30 May 2022