IJM Corp’s 9MFY18 result was below market and our expectations. Property development, plantation and industrial earnings were weaker than expected. Net profit declined 19% yoy to RM339m in 9MFY18. We cut our EPS forecasts by 14-16% in 2018-20E to reflect lower earnings for these divisions. We reduce our RNAV-based TP to RM3.65 from RM3.70 to reflect lower valuation for these segments. We retain our BUY call given good long-term prospects.

Construction Was the Star Performer

Net profit of RM339m (-19% yoy) comprised only 56-60% of consensus 2018E forecast of RM606m and our previous estimate of RM561m. Revenue increased 5% yoy to RM4.63bn in 9MFY18, driven by higher revenue for all divisions except its industrial segment. PBT fell 13% yoy, dragged down by lower property (-7% yoy), industrial (-35% yoy) and plantation (-43% yoy) PBT. Construction PBT increased 9% yoy with higher revenue (+3% yoy) and a 0.5ppt improvement in PBT margin to 8.3%.

Strong Property Sales and New Contract Procurement

IJM achieved RM1.23bn new property sales in 9MFY18 and has raised its sales target to RM1.6bn in 2018 from RM1.4bn initially. It secured RM460m property sales in 3QFY18, mainly from Bandar Rimbayu, Seremban 2 and Riana South@Bukit Manda’rina projects. Unbilled sales of RM1.9bn will sustain its property earnings. IJM secured RM2.7bn new contracts YTD replenishing its order book to RM9.3bn currently.

Investment Phase

Higher depreciation and finance costs contributed to the decline in earnings as IJM completed its second palm oil mill in Indonesia. The Kuantan Port expansion and construction of the West Coast Expressway (WCE) will lead to higher depreciation/amortisation on completion but will support long-term earnings growth and building new streams of recurring earnings.

Maintain BUY

IJM is a key beneficiary of China’s Belt and Road initiative as more heavy industries from China are setting up plants near its Kuantan Port. Good prospects to grow its order book with the IJM Corp-Jalinan Rejang-Maltimur Resources-Sunway Construction consortium submitting a bid for the KLSingapore High Speed Rail Project Delivery Partner contract. Maintain BUY. Key risk to our call is weak property and port revenue.

Source: Affin Hwang Research - 28 Feb 2018