IJM Corp’s 1HFY18 result was below market and our expectations. Net profit fell 15% yoy to RM237m, mainly due absence of one-off and unrealised forex gains, and lower operating profit. We cut our EPS forecasts by 11% in FY18-20E to reflect the lower plantation and property earnings. We believe long-term growth prospect is good with a record-high construction order book of about RM9.4bn and ongoing expansion of infrastructure concession assets. The FY19E PER of 15x is attractive considering the 2-year EPS CAGR of 19%, on our estimates. We reiterate our BUY call with a lower RNAV-based TP of RM3.70.

Plantation and Industries Drag

IJM Corp’s net profit of RM237m (-15% yoy) in 1HFY18 comprised 36-37% of FY18 consensus and our previous forecasts of RM634-652m. Revenue was up 9% yoy to RM3.06bn with all divisions posting higher revenue. However, PBT declined 13% yoy to RM379m in 1HFY18 due to lower plantation (-58%) and industry (-25%) earnings. Its construction (+11%), property (+12%) and infrastructure (+175%) divisions were the key earnings drivers for the group. Core net profit fell 7% yoy to RM243m due to lower plantation and industry earnings. Unrealised forex loss of RM4m in 1HFY18 (RM11m gain in 1HFY17), the non-recurrence of a RM27.9m one-off gain for an associate in 1HFY17 and higher tax rate led to the sharper 15% yoy decline in net profit.

Construction and Infrastructure Were Star Performers

Its construction division saw higher progress billings and a jump in order book, while PBT margin was stable (10.1% in 1HFY18 vs 10.3% in 1HFY17). Its property division achieved RM770m sales in 1HFY18 and could exceed target sales of RM1.4bn. Robust demand for landed homes at Bandar Rimbayu, Shah Alam 2 and Seremban 2 projects underpin sales.

Sustained New Order Flow

IJM is in the running for a LRT3 package and the award decision could be by end-2017. Potential in-house projects are Light Commercial Phase 2, expansion of New Pantai Expressway and Kuantan Port Phase 2 expansion. Kuantan Port will see a pick up in cargo throughput when Alliance Steel Mill commence operation in March 2018 but this is offset by lower bauxite exports.

Maintain BUY

We trim our RNAV-based TP to RM3.70 from RM3.75 to reflect lower valuation for plantation division. IJM is a key beneficiary of China’s Belt and Road initiative. BUY. Key risk to our call is weak property and port revenue.

Source: Affin Hwang Research - 29 Nov 2017