IJM Corp posted net profit of RM251m (-40% yoy) in FY20, above our but within market expectations. Excluding a net exceptional loss of RM204m, core net profit of RM455m (+21% yoy) was a positive surprise. We were expecting a contraction in construction and property earnings. But both divisions had flat earnings. We believe the earnings outlook in FY21 remains challenging given disruptions from COVID-19. We reiterate our SELL call and TP of RM1.68, based on a 30% RNAV discount.

Above Expectations

IJM’s net profit fell 40% yoy to RM251m in FY20, which was close to market consensus forecast of RM250m but 10% above our estimate of RM228m. Its bottom line was dragged down by estimated net exceptional loss of RM121m and forex losses of RM83m in FY20. The associates’ losses of RM62m were mainly from WCE and the Argentina toll-highway operation, of which RM41m was for the impairment of its investment in the latter.

Strong Revenue Growth

Revenue grew 17% yoy to RM6.61bn in FY20, driven by higher construction (+4% yoy), property development (+53% yoy), plantation (+17% yoy) and infrastructure (+8% yoy) revenue. Property revenue was boosted by the lumpy recognition of sales for its Royal Mint projects in London in 4QFY20. However, industry revenue declined (-6% yoy) due to weak demand for concrete piles. PBT fell 20% yoy to RM518m in FY19 due to net forex and exceptional losses. Its construction and property earnings were flattish yoy in FY20. Industry (- 24% yoy) and infrastructure (-43% yoy) divisions saw lower PBT, while its plantation arm reported a higher loss (mainly due to forex losses).

High Construction Order Book and Sustained Property Sales

IJM secured the RM530m TRX Residences project in 4QFY20 to replenish its order book at RM4.5bn. It is targeting to secure The Light Commercial project worth about RM1.4bn in FY21, which is developed by its joint-venture company with Perennial. It achieved property sales of RM1.4bn in FY20 and targets to launch RM1.43bn worth of properties in FY21.

Reiterating Our SELL Call

We remain cautious on IJM’s prospects in FY21 due to the full impact of the government’s Movement Control Order and the pandemic on its operations. We reiterate our SELL call with 12-month TP of RM1.68.

Source: Affin Hwang Research - 29 Jun 2020