IJM Corp’s 1QFY19 result was below expectation mainly due to unrealised forex loss of RM71m. Core net profit declined 15% yoy to RM122m in 1QFY19, which was in line with our expectation. The property arm was the star performer for the group posting a PBT rebound of 87% yoy. Its plantation arm was a drag to group earnings, recording a loss of RM26m. We trim core EPS by 1-2% in FY19-21E to reflect lower plantation contribution. We reiterate our BUY call with a lower 12-month target price of RM2.45, based on 10% discount to RNAV.

Core Earnings Within Our Expectation

1QFY19 net profit of RM63m (-48% yoy) comprised 12-13% of consensus and our previous FY18E forecasts of RM518m and RM488m respectively. We were surprised by the unrealised forex loss of RM71m. Core net profit of RM122m (- 15% yoy) was within our expectation, comprising 25% of our previous FY18E forecast. Revenue declined 1% yoy to RM1.44bn in 1QFY19. But revenue rebounded 3% qoq, mainly driven by higher property development revenue.

Plantation Loss Drag

PBT plunged 45% yoy to RM103m in 1QFY19 due to lower construction (-29% yoy), industry (-41% yoy) and infrastructure (-89% yoy) earnings, while its plantation arm contributed a loss of RM26m. Although construction revenue only declined 1% yoy, PBT was lower mainly due to unrealised forex losses. Similarly, its plantation arm was also hit by unrealised forex losses on its US$ borrowings, while CPO selling prices were also lower. Property PBT jumped 87% yoy and 94% qoq to RM45m in 1QFY19 (highest contributor at 44% of group PBT), driven by higher revenue (+14% yoy) and better PBT margin of 13.4% in 1QFY19 compared to 8.2% in 1QFY18 and 7.4% in 4QFY18.

High Order Book and Unbilled Sales

IJM’s high remaining order book of RM8.8bn and unbilled sales of RM2bn will support construction and property earnings in FY19-21E. We expect higher FFB production to drive plantation earnings turnaround in subsequent quarters.

Maintain BUY

We revise down our RNAV/share estimate to RM2.73 from RM2.82 to reflect lower plantation valuation. Based on the same 10% discount to RNAV/share, we cut our TP to RM2.45 from RM2.54. 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 - 29 Aug 2018