Land Sale Gain

IJM Corp’s FY17 result was within market and our expectations. Net profit fell 18% yoy to RM654m in FY17, mainly due to lower exceptional gains. Core net profit fell 1% yoy to RM506m due to lower port and overseas infrastructure earnings. We lift our earnings forecasts by 8-12% in FY18- 19E to reflect higher property and industry earnings. We downgrade our call to HOLD from Buy with lifted RNAV-based target price of RM3.75 given limited potential upside.

Within Expectations

IJM’s net profit of RM654m in FY17 was close to consensus and our forecasts of RM688-692m. Revenue was up 18% yoy driven by higher revenue for all divisions except its infrastructure arm. PBT declined 13% yoy to RM1.01bn in FY17, mainly due to lower exceptional gain of RM117m compared to RM292m in FY16. IJM realized one-off gains from the disposal of its Indian highway concession assets in FY16 and recognised RM100m gain from the deemed partial disposal of land to its joint venture with Perennial to develop The Light Waterfront Phase 2 in 4QFY17.

Dragged Down by Lower Port Earnings

Construction PBT jumped 27% yoy to RM217m in FY17, contributing 21% of group’s PBT. It secured RM3bn new contracts in FY17 to grow its order book to RM8.6bn. Property PBT jumped 90% yoy to RM303m due to the land sale gain and higher property development profit. Property sales of RM1.4bn in FY17 matched the previous year sales. Unbilled sales of RM1.7bn will support property earnings in FY18-19E. Industry PBT increased 15% yoy to RM142m due to higher sales while PBT margin was stable. Plantation PBT rebounded 13% yoy to RM22m on higher CPO price and FFB production. But infrastructure earnings plunged 89% yoy to RM62m due to the absence of one-off gain and lower port earnings (cargo throughput fell 61% yoy due to the ban on bauxite mining in Kuantan).

Downgrade to HOLD

Prospects to replenish its order book is good as it will bid for the LRT Line 3, East Coast Rail Link and Klang Valley building projects. We lift our RNAVbased TP to RM3.75 from RM3.57 after rolling over the base year to FY18E for DCF valuations. We believe current CY18E PER of 17.5x is fair as it is close to construction sector weighted-average PER. Given the potential upside of only 7% to our TP, we downgrade our call to HOLD from Buy.

Source: Affin Hwang Research - 26 May 2017