IJM Corp reported 1QFY20 results that were below expectations. Net profit was down 5% yoy to RM59m in 1QFY20 mainly due to impairment for its Scomi Group stake and unrealised forex loss. Core net profit contracted by 25% yoy to RM101m on higher finance costs and tax rate, while its associates incurred net losses. We cut our core EPS by 13-15% to reflect the IJM Land Perpetual Sukuk profit payments and lower plantation earnings. We reiterate our HOLD call with a reduced RM2.17 target price (TP), based on 10% discount to RNAV.

Below Expectations

IJM reported net profit of RM59m in 1QFY20, which is only 12-13% of marketconsensus and our previous FY20 forecasts of RM446-473m. We were surprised by the RM42m impairment for its Scomi stake (written down to just a few RMm in its books) and unrealised forex loss of RM10m in 1QFY20. Net exceptional loss of RM41m and Sukuk profit share of RM11m knocked down its bottom line. Revenue was up 7% yoy to RM1.54bn in 1QFY20, driven by higher property development (+38% yoy) and infrastructure (+18% yoy) revenue. Plantation (-27% yoy) and construction (-2% yoy) revenue declined while industry revenue was flat.

Plantation Loss

PBT jumped 39% yoy to RM173m in 1QFY19 due to lower forex and exceptional losses. All core divisions except plantation saw positive growth: infrastructure (+543% yoy), property (+15% yoy), construction (+2% yoy) and industry (+2% yoy). Its plantation arm incurred a loss of RM5m in 1QFY20. Strong infrastructure PBT growth was mainly due to higher Kuantan Port earnings (+263% yoy), driven by the expansion in cargo throughput.

Cut in Earnings

We cut core EPS by 13-15% yoy in FY19-22E to reflect lower plantation earnings, higher net interest expense and profit payments on RM650m Perpetual Sukuk issued by its 100%-owned subsidiary IJM Land at 5.73% p.a. in March 2019. High construction order book of RM6.1bn and property unbilled sales of RM2bn should support core EPS growth of 9% yoy in FY19E.

Maintain HOLD

We cut our RNAV/share estimate to RM2.71 from RM2.74 to reflect the lower plantation valuation, higher company net debt and lower listed associate company valuations. Based on the same 20% discount to RNAV, we trim our TP to RM2.17 from RM2.20. Maintain our HOLD call.

Source: Affin Hwang Research - 29 Aug 2019