IJM reported 9MFY23 core PATAMI of RM228.0m meeting both our/consensus expectations at 70%/75% of full year forecasts. Construction orderbook stands at RM4.6bn (3.1x cover). Pipeline includes highway extension, ECRL, Indian highways, buildings/industrial and MRT3. Unbilled sales stood at RM3.4bn, inclusive of land sales. Port throughput remains flattish with outlook dependent on trade activities with China, an upside risk. There is no indicative timeline when phase 1 of the toll restructuring will be finalised. Marginal tweaks to forecasts. Maintain BUY rating with unchanged TP of RM1.88. Key catalysts include MRT3 news flow and contract wins.

Met expectations. IJM reported 3QFY23 results with revenue of RM1.1bn (2.7% QoQ, -13.2% YoY) and core PATAMI of RM78.2m (6.6% QoQ, -8.7% YoY). This brings 9MFY23 core PATAMI to RM228.0m, increasing by 220.7%. Results met our/consensus expectations at 70/75% % of full year forecasts.

EIs. Note that we have adjusted 3QFY23 numbers for -RM3.4m of forex losses. No other EIs were assumed for 3QFY23.

Dividend. No DPS was declared for the quarter (9MFY23: 2 sen; 9MFY22: 17 sen).

QoQ. Core PATAMI increased by 6.6% riding on the back of stronger performance at its property, port and domestic tolls segments. PBT for property, port and domestic tolls were higher QoQ at +14.8%/+22.8%/+6.4%. Its overseas infra segment also saw narrowing losses potentially due to higher resurfacing costs incurred in 2QFY23.

YoY. Core PATAMI decreased by -8.7% tracking similarly with lower revenue (- 13.2%). Key factor for the decline was the construction segment which saw lower revenue (-37.5%) and PBT (-75.4%). We attribute this to ongoing projects that are still in the initial phases of construction seeing as outstanding orderbook levels have not changed materially. We believe the decline in segmental PBT margins by -4.8 ppts is reflective of this.

YTD. Core PATAMI surged by 3.2x as 9MFY22 was impacted by loss of operating days and various supply chain challenges.

Construction. Outstanding orderbook amounts to RM4.6bn (3.1x cover). Contract wins for FY23 amount to RM1.4bn comprising of 2 buildings, 1 hospital and 1 factory job. While IJM has previously maintained its RM2.5-3.0bn target for FY23, indications are that this will not be met with another month to go. We believe its ongoing toll restructuring yields construction opportunities, nonetheless, the entirety of it has not taken place yet pending restructuring of the NPE. Several outstanding tenders are MRT3 three civil packages, ECRL spur line, highways in India and other private sector building/industrial type jobs. We believe a more transparent and reversion to open tender procurement process to be adopted by the government could open more doors for IJM.

Property. Sales in 3QFY23 came in at RM700m taking total sales for 9MFY23 to RM2.4bn, close to matching FY22 total sales number of RM2.4bn. Nevertheless, we gather that the figure for 9MFY23 is inclusive of RM1.0bn worth of land sales. In 3QFY23, the sequential pickup in sales came from high value commercial developments in Bandar Rimbayu and Seremban 2. IJM has previously guided that further land sales are in progress and could materialise in FY24. Unbilled sales have inched higher sequentially to RM3.4bn (+10%). IJM is on track to achieving its FY23 sales target of RM3.0bn. Accordingly, we expect stronger bottom-line contribution from this segment going forward.

Industry. Segmental topline declined sequentially by -7.4% with PBT falling by - 34.4%. We attribute this to slowing order wins in FY23 vs FY22 which was an exceptionally strong year. PBT margin for the segment has also moderated to a more sustainable 13.5% in 3QFY23 vs 19.5% achieved in 2QFY23, in-line with management’s guidance. We continue to expect strong performance from this segment for the remainder of FY23.

Infrastructure. Port throughput was flattish in 3QFY23 coming in at 5.6m (vs 5.7m in 2QFY23). For 9MFY23, throughput was 16.6m which is tracking along closely with our 22.8m estimate for FY23. Going forward, we expect volumes to sustain in light of lower shipping rates. However, outlook for FY24 would be largely dependent on global trade activities with China’s reopening a positive factor. As for its toll segment, domestic highways are recording traffic volumes exceeding pre-pandemic levels, in particular the LEKAS highway. Its ongoing toll restructuring is guided to be NPV neutral, however there is no indicative timeline when this will be finalised.

Forecast. Tweak FY24/25 earnings by -0.3% and -0.8% post adjusting for timing of contract wins.

Maintain BUY, TP: RM1.88. Maintain BUY with unchanged TP of RM1.88. TP is derived based on unchanged 30% discount to SOP value of RM2.68. We see trading opportunities in the stock considering recent sluggish share price performance (P/B multiple at -1SD). Key catalysts include MRT3 news flow and contract wins. Risks: MRT3 cancellation, prolonged elevated materials prices and labour shortage.

Source: Hong Leong Investment Bank Research - 24 Feb 2023