IJM Corp’s 9MFY19 result was below market expectations but in line with ours. Net profit fell 46% yoy to RM178m in 9MFY19, mainly due to exceptional and unrealised forex losses of RM125m. Core net profit declined 14% yoy to RM303m on poorer performance for all segments except its property arm. We trim our EPS by 3% in FY19E to reflect plantation losses and slower construction progress billings. We reiterate our HOLD call with TP of RM1.96, based on 20% discount to RNAV.

Weaker Performance

IJM’s 9MFY19 net profit of RM178m comprised only 41% of consensus fullyear forecast of RM439m but 70% of our previous estimate of RM253m. Revenue declined by 8% yoy to RM4.26bn in 9MFY19. Although property (+19% yoy) and infrastructure (+6% yoy) revenue was higher, this was partly offset by lower construction (-14% yoy), industry (-20% yoy) and plantation (- 23% yoy) revenue. PBT fell 40% yoy to RM316m in 9MFY19 with all divisions showing weaker performance except its property arm (+71% yoy).

Large Exceptional and Forex Losses

IJM incurred one-off loss of RM41m arising from the disposal of its remaining 30% stake in Swarna Tollway and unrealised forex losses of RM92m in 9MFY19. Construction division saw slow progress billings on new projects while PBT margin narrowed to 6.3% in 9MFY19 compared to 8.7% in 9MFY18. High remaining order book of RM8.4bn provides good earnings visibility, which includes the RM505m Affin Bank’s office building project in Tun Razak Exchange. Higher property PBT was driven by the launch of a condominium project in Penang and higher sales of completed units and commercial land. RM1.2bn pre-sales was recorded in 9MFY19.

Operating Challenges

We fine-tune our earnings forecasts by cutting core EPS by 3% in FY19E and lifting FY20-21E core EPS by 0-3% to reflect plantation losses and slower progress billing in the current year before accelerating in later years. We trim our target price by 1% to RM1.96 to reflect lower TP for IJM Plantation. IJM continues to face operating challenges such as high plantation operating costs, weak demand and stiff price competition for its concrete product manufacturing and quarry division, weak property market and delays in certain construction projects such as Light Rail Transit Line 3. We believe the concerns are reflected in the current share price, which is trading at Price/book of 0.8x. Maintain our HOLD call.

Source: Affin Hwang Research - 27 Feb 2019