Results

• IJM reported a headline bottom line of RM126.4m for its 1QFY18, which dropped 38.5% qoq but improved 17.4% yoy.

• Lackluster qoq performance for its 1QFY18 core net profit of RM127.8m as compared to RM207.6m in 4QFY17 was mainly attributed by lack of recognition of land sales under property segment in this quarter – Besides that, better performance in Infrastructure segments (increased cargo throughput) for 1QFY18 mitigated softening performance in both Industry (higher material cost) and Plantation segments (higher maintenance cost).

• Meanwhile, the group’s performance was mainly lifted by Construction, property and Infrastructure segments on a yearly basis with core net profit up 17.4% yoy.

• Within expectations –3MFY17 core net profit of RM127.8m was within ours but below consensus expectation by matching 20.7% and 19 % of full year forecast respectively.

Comment

• Construction segment remained the growth driver for the group’s top line as certain major infrastructure projects gathered momentum. Construction segment’s revenue continued its growth, +10.9% qoq and +7.9% yoy to RM533m in view of higher momentum gathered for West Coast Expressway and Kuantan port and its construction works for Bukit Bintang City Centre Mall. Similarly, PBT grew 16% yoy but inched down marginally by 1.96% qoq.
   
• Construction order book stands at RM8.7b with target order book of RM3b (achieved 26.4% to date) in FY18. The Group managed to bag 1 infrastructure and 1 building work in FY18 so far, namely MRT2 Station contract (RM342m) and UOB Tower 2 (RM450m). As such, the group has successfully secured RM793.1m construction work in FY18 which accounted for 26.4% of the group’s target orderbook replenishment of RM3b for FY18. 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.
   
• Property segment remained resilient with higher revenue and PBT posted on yearly basis. Property segment 1QFY18’s revenue and PBT improved 2.1% yoy and 23.2% yoy respectively. Meanwhile, revenue dropped 47% qoq with PBT plunged 88.3% qoq as a result of lack of land sales recognition in this quarter.

• Property segment underpinned by RM1.7b unbilled sales with RM1.4b target new sales in FY18. 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 seeks to launch the right products at the right locations. Projects to be launched in the near future 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 of close to 60%.

• Industry segment hit a bump in 1QFY18 as raw material price increased. Industry segment recorded a top line growth of 10% yoy and remained flat on quarterly basis mainly due to increased orders from local and overseas projects which boosted the delivered tonnage of piles (+4.9% yoy) and quarry products (+17.4% yoy). However, PBT for industry segment slid 39% qoq and 16.2% yoy in view of higher raw material prices coupled with lower volumes in the ready-mixed concrete sector.

• Infrastructure segment appeared to be the savior in 1QFY18 given increase in cargo throughput handled. Infrastructure segment enjoyed revenue growth of 13.2% qoq and 29.3% yoy, mainly attributed by its increase in cargo throughput handled from 2.949m FWT in 1QFY17 to 5.114m FWT in 1QFY18 (+73% yoy). As such, PBT soared 82% qoq and tripled on yoy to RM 64.6m in 1QFY18. Nevertheless, the group is aiming cargo throughput at the port to hit 20mFWT in FY18 in view of the contribution from Alliance steel that will start their operation in Malaysia-China Kuantan Industrial Park (MCKIP).

• Replanting cost (Malaysia Operation) and full fixed plantation maintenance cost (Indonesia Operation) tapered Plantation segment’s 1QFY18 performance despite higher revenue. Both Malaysia and Indonesia operation recorded higher revenue (+38.1% yoy and 26.1% yoy) as a result of higher FFB production (+3.8% yoy and +54.3% yoy) coupled with higher CPO price (+7.1% yoy and 3.8% yoy) that outweighed a dipped in Palm Kernel price (-11.2% yoy and – 5.5% yoy). However, PBT dropped 17.8% for MO and 57.4% for IO respectively in view of the low margins. Similarly, PBT dropped 33% qoq despite revenue only edged down 4.2%.

Earnings Outlook/Revision

• No change to our earnings forecast for FY18 and FY19.

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 - 24 Aug 2017