IJM Corp’s FY18 result was disappointing. Core net profit declined 11% yoy to RM404m in FY18. But the impairment of its investment in Scomi amounting to RM47m pushed net profit down to RM350m (-47% yoy) in FY18. We cut our EPS by 6-12% in FY19-20E to reflect weaker property, industry and infrastructure earnings. Its construction, infrastructure and plantation divisions will be the main driver for core EPS to rebound 28% yoy in FY19E. We reiterate our BUY call with a reduced 12-month target price of RM2.54, based on 10% discount to RNAV.

Below Expectations

Net profit of RM350m in FY18 was 34% below consensus forecast RM526m and 25% below our estimate of RM469m. We were surprised by the net exceptional los s of RM50m, mainly due to impairment of its 21% stake in Scomi and unrealised forex loss. Core net profit was 14% below our estimate due to weak property and industry earnings.

Strong New Contract Flows and Better Property Sales

IJM secured about RM3.8bn worth of new contracts in FY18, lifting its remaining construction order book to a high of RM9.4bn, equivalent to 4x FY18 construction revenue. It also achieved higher property sales of RM1.6bn in FY18 compared to RM1.4bn in FY17, mainly from its Bandar Rimbayu, Shah Alam 2 and Seremban 2 projects. Unbilled sales stood at RM2bn.

Pursuing New Projects

IJM is bidding for more building jobs locally, Indian highways and there is a pipeline of in-house construction works for The Light Commercial Waterfront and Kuantan Port expansion worth over RM3bn. In the long term, the new government’s plan to award public-sector contracts through open tender is positive for efficient contractors like IJM as the move will level the playing field.

Maintain BUY

The sharp correction in the share price provides an opportunity to accumulate the stock. We revise down our RNAV/share estimate to RM2.82 from RM3.33 to reflect lower property valuation and listed asset valuations, which is partly offset by higher infrastructure asset valuations after rolling forward the DCF base year to FY19E. Based on the same 10% discount to RNAV/share, we cut our TP to RM2.54 from RM3.00. IJM remains our top large-cap sector BUY. Key downside risks are slower property sales and government policy risk for its toll road concessions.

Source: Affin Hwang Research - 31 May 2018