• IJM Corp’s 6M FY21 results were broadly within our expectation but below the market’s. Net profit rebounded to RM100m in 2Q FY21 from RM1m in 1Q FY21 following the easing of the Movement Control Order (MCO).
• Higher CPO prices boosted plantation earnings but slow progress billings led to weaker construction, industry and property division performance in 6M FY21, while its infrastructure earnings were lower due to the MCO.
• Overall, net profit fell 22% yoy to RM101m but core earnings plunged by a sharper 77% yoy to RM34m in 6M FY21. We maintain our HOLD call with a higher TP of RM1.55, based on narrower discount to RNAV of 20%.

Strong Rebound From Low Base

Net profit of RM101m (+22% yoy) in 6M FY21 made up 47% of our FY21E earnings of RM216m but was only 44% of consensus full-year estimates of RM230m. The easing of MCO restrictions supported a recovery in traffic volumes (toll highways) and cargo throughput (Kuantan Port). Infrastructure PBT was RM68m in 2Q FY21 compared to a RM11m loss in 1Q FY21. Plantation earnings contribution increased to PBT of RM113m in 6M FY21, compared to a RM10m loss in 6M FY20 on the back of higher CPO sale volumes and prices. But slow progress billings led to lower construction (-15% yoy) and property (-73m yoy) earnings in 6M FY21 earnings. Unrealised forex gain of RM66m boosted its bottom line. Strong core earnings of RM123m in 2Q FY21 offset the RM87m loss in 1Q FY21 to post a core net profit of RM34m in 6M FY21. We raise our FY21-22E core EPS to reflect higher CPO prices.

High Construction Order Book Replenishment and Property Sales

IJM secured about RM2bn new contracts YTD FY21, including a RM1.2bn contract to build facilities for its joint-venture The Light City project. Its order book remains high at about RM5.1bn as at 30 September 2020. This will support its construction earnings in 2HFY21. Good prospects to grow its order book as the government accelerates the infrastructure spending under the recently announced Budget 2021. IJM achieved property sales of RM720m in 6MFY21 and is on track to hit over RM1bn sales this year with good take-up rates for its new launches in Bandar Rimbayu.

Maintain HOLD

We maintain our HOLD call on IJM. As the earnings recovery appears to be on track, we narrow our discount to RNAV to 30% from 40% previously and lift our 12-month TP to RM1.55 from RM1.33 previously. FY21E PER of 27x is not attractive.

Source: Affin Hwang Research - 26 Nov 2020