Results

• IJM reported a headline bottom line of RM236m for its 4QFY17, which surged 70.6% qoq and 433.5% yoy.

• Stellar performance for its 4QFY17 core net profit of RM207.6m was lifted by recognition of land sales under property segment - After stripping out net forex gains (RM15.42m), gains on disposal of investment (RM8.12m) and derivatives contract gains (RM3.42m), IJM’s core earnings jumped 52.6% qoq and 161% yoy. The compelling performance was mainly attributed to better performance in construction, property and Plantation segments.

• Meanwhile, the group recorded 12MFY17’s core net profit of RM602m, up 18.3% yoy. We witnessed the growths in all segments except the Infrastructure in view of the extended moratorium on bauxite export and a higher base in FY16 pursuant to the disposal of Swarna Tollway and Jaipurmahua Tollway.

• Above expectations –12MFY17 core net profit exceeded our earnings forecast by 8% due to the recognition of the sale of a 32-acre land situated at the Light Waterfront Penang (Phase2) but within consensus’s full year forecast 99.7%.

Segmental Highlight

• Construction segment remained the growth driver for the group’s top line. Construction segment’s revenue slid 22.4% qoq but increased 35.2% yoy. Similarly, 12MFY17 revenue for construction surged 52.1% yoy with PBT stood at RM216.7m (+21.1% yoy). Moving forward, we understand that there will be more revenue to be recognized from West Coast Expressway and Kuantan port. Meanwhile, construction works for Bukit Bintang City Centre Mall has just commenced and Equatorial Plaza work is projected to be topping out by July 2017.

• Construction order book stands at RM8.6b after the group successfully replenished RM3b order book in FY17. The Group managed to bag 3 infrastructures and 1 building works in FY17, namely IJM-CHEC JV Kuantan Breakwater contract (RM176m), MRT2 Viaduct contract (RM1.47b), BBCC Retail Mall contract (RM1.16b) and Dewas Bypass Tollway contract (RM185m). Looking forward, the Group is optimistic to replenish its order book from various infrastructure works such as Pan Borneo highway, LRT3, SUKE Highway and DASH Highway. Notably, the abovementioned contracts require higher proficiency in respect of elevated portion for highways. Nevertheless, the group target orderbook replenishment for FY18 is RM3b.
   
• Stellar performance in property segment with the recognition of 32-acre land sales situated at the Light Waterfront Penang (Phase2) coupled with completion of higher margin projects. Property segment 4QFY17’s PBT elevated almost four-fold to RM209m as compare to RM42m in last quarter and RM4.4m in the preceding years quarter. Cumulatively, property segment recorded higher revenue of RM1.43b in 12MFY17 (+21.3% yoy) with 12MFY17’s PBT increased 90% yoy to RM303.3m. The group feels that there are some improvement in buyer sentiment despite stringent loan criteria imposed by banks are still in place.
   
• Property segment underpinned by RM1.7b unbilled sales given RM1.4b new sales achieved in FY17. The Group will continue to focus on township and landed development such as Bandar Rimbayu, Shah Alam 2 and Seremban to underpin sales. Moving forward, the group is targeting new sales of RM1.4b, which is on par with FY16 and FY17 new sales. We believe the target new sales is achievable as the group also seek to launch the right product at the right location. Projects to be launched imminently consist of: a.) Rimbuan Vista Double Story and b.) Riana Dutamas, Segambut. Meanwhile, the recent launch of The waterside Residence, The Light waterfront, Penang has received an encouraging take up rate closed to 60%.

• Industry segment kept its growth momentum in FY17. The segmental PBT for this quarter slid on quarterly basis but up 58.1% on yearly basis which was underpinned by increase in the delivered tonnage piles, +23.4% yoy and quarry products, +45%. yoy. Meanwhile, cumulatively revenue and PBT improved by 12.6% yoy and 14.8% yoy respectively. Looking forward, we understand that East Coast Rail Line (ECRL) project may create demand for piles and current outstanding orderbook stands at 1.1m tonnage.

• Infrastructure segment decimated the Group’s earnings in FY17 due to the extended moratorium of bauxite and lack of disposal gains. Infrastructure segment 12MFY17’s revenue fell 40.6% yoy with PBT nosedived 88.8% yoy to RM62.3. The unappealing performance was attributed to lower cargo throughput in view of current moratorium on bauxite related activities and as a result of fewer income generating concessions after disposal of tollways. In addition, the subdued performance was fazed by one-off gain from the disposal of a 74% equity interest in Jaipur-Mahua Tollway totaling of RM168.7m in the previous year and 70% equity interest in Swarna Tollway for RM133.3m. Nevertheless, the group is aiming cargo throughput at the port to hit 20FWT in FY18 in view of the contribution from Alliance steel that will start their operation in Malaysia-China Kuantan Industrial Park (MCKIP).
   
• Performance of Plantation segment has ameliorated with 12MFY17’s core net profit surged 177.3% yoy to RM110m, back by higher selling price coupled with FFB production inched up 1.7% yoy. Malaysia operation 12MFY17’s PBT surged 160% yoy, underpinned by higher CPO (+28.5% yoy) and PKO (+77% yoy) selling prices which outweighed a slide in FFB production (- 3.4%yoy). Meanwhile, Indonesia operation 12MFY17’s PBT stood at RM38.3m, against scant gains of RM0.33m in the preceding 12 months thanks to a higher FFB production (+8.4% yoy) coupled with higher CPO (+36.3% yoy) and PKO (+109% yoy) selling prices. Moving forward, the group is seeing to reach 1million mt FFB yield beyond FY18.
   
• Declared a single tier second interim dividend of 4.5 sen per share with ex-date on 28 June 2017. As such, total dividend proposed in FY17 was totalled to 7.5 sen, which translate into a dividend yield of 2.14%.

Earnings Outlook/Revision

• We introduce our earnings forecast for FY19F with a growth of 17.5% yoy while retain our earnings forecast for FY18F.

Valuation & Recommendation

• Maintained BUY call with an unchanged target price of RM3.76. Our fair value for IJM is based on SOP valuation, which implies 21.7x FY2018 PER. We favour the group for its well-diversified business model, which cushions the downside risk of cyclical nature for its individual segmental business.

Source: JF Apex Securities Research - 26 May 2017