• IJM Corp’s 1QFY21 results were disappointing. Net profit fell 98% yoy to RM1m. Excluding net exceptional and forex gain of RM89m, it incurred a core net loss of RM87m in 1QFY21 compared to core net profit of RM257m in 1QFY20.
• Strong earnings for its plantation arm was insufficient to offset weak earnings for its construction division and losses for its other divisions.
• We cut our core EPS by 33% in FY21E and 6-7% in FY22-23E to reflect the slow earnings recovery from the impact of the Covid-19 pandemic. However, we believe this is reflected in the share price and upgrade our call to HOLD with lower target price of RM1.33, based on 40% discount to reduced RNAV.

Severe Impact of MCO on Operations

The sharp 98% yoy and qoq fall in net profit to RM1m in 1QFY21 was a surprise compared to full-year market consensus forecast of RM277m and our previous estimate of RM190m. Revenue plunged 43% yoy and 57% qoq to RM880m in 1QFY21 with lower revenue reported for all divisions except plantation (+55% yoy): Construction (-44% yoy), property development (-68% yoy), industry (-63% yoy) and infrastructure (-22% yoy). The government’s Movement Control Order (MCO) adversely impacted the progress on its construction projects, property sales, demand for piles and other concrete products, and traffic volume on toll highways.

Core Net Loss Incurred

IJM incurred a core net loss of RM87m in 1QFY21 compared to core net profit of RM59m in 1QFY20. 3 core divisions were in the red, ie, the property development (RM10m), industry (RM15m) and infrastructure (RM11m) divisions. Its construction and plantation operations were the main contributors to group pre-tax profit of RM93m at 12% and 88% of total respectively. The bulk of the plantation earnings were due to unrealised forex gain on its US$ and ¥ loans, while selling prices and production improved.

Weak Results Reflected in Share Price Following Correction

IJM secured a RM864.7m contract to build The Light City retail mall and convention centre, replenishing its order book to RM5.5bn currently. We expect the resumption of construction works, recovery in traffic volume for its toll highways and pick up in sales of properties and building materials to return the group into the black in subsequent quarters. We cut our RNAV/share estimate to RM2.22 from RM2.39 previously assuming lower sustainable earnings RM70m for construction and RM20m for industry (RM90m and RM50m previously). Based on a higher 40% discount to RNAV (30% previously), we cut our TP to RM1.33 from RM1.68 previously. Upgrade our call to HOLD.

Source: Affin Hwang Research - 27 Aug 2020