Construction leads

IJM Corp’s 1HFY17 result was below our expectations. Net profit fel 43% yoy to RM279m in 1HFY17, mainly due to lower exceptional gains Core net profit declined 17% yoy to RM260m due to lower property industry and infrastructure earnings. We cut our earnings forecasts by 4-10% to reflect lower property and infrastructure earnings. We maintain our BUY call with lowered RNAV-based target price of RM3.57.

Below market expectations

Net profit of RM279m for 1HFY17 comprised only 45% of full-year consensus forecast of RM617m and 39% of our previous estimate of RM718m. Core net profit of RM260m was 46% of our previous estimate of RM571m. We were surprised by the low property and infrastructure earnings. Revenue increased 11% yoy to RM2.8bn, driven mainly by higher construction revenue. But net profit declined 43% yoy due to the absence of RM168.7m one-off gain from the disposal of a 74% stake in Jaipur-Mahua Tollway (JMT) in 1HFY16, and lower operating profit.

Construction was the highest earnings contributor

Construction PBT jumped 32% yoy to RM109m in 1HFY17, contributing 25% of group’s PBT. It secured RM1.6bn new contracts in 1HFY17 to replenish its order book to RM8.2bn. Property PBT fell 61% yoy to RM52m due to lower property sales and profit margin. IJM secured RM0.7bn sales in 1HFY17 and is targeting to maintain previous year’s sales of RM1.4bn for the full year. Industry PBT declined 15% yoy despite a 6% yoy increase in revenue due to higher proportion of smaller piles (lower profit margin) in 1HFY17 sales. Lower plantation and infrastructure PBT also contributed to the 33% yoy decline in group PBT in 1HFY17.

Cut in earnings and target price

We expect the potential gain from the partial disposal of The Light Phase 2 land into the joint venture with Perennial and sale of its remaining stake in JMT to lift earnings in 2HFY17 (one-off gains included in our forecast). But we cut our core EPS forecasts by 5-10% in FY17-19E to reflect lower property and infrastructure earnings. We lower our RNAV-based target price to RM3.57 from RM3.76 to reflect lower infrastructure division valuation following the cut in earnings. Maintain BUY. Key risks are weaker-than-expected recovery for property sales and weak plantation production.

Source: Affin Hwang Research - 29 Nov 2016