Results

• IJM reported a PATAMI of RM101.4m for its 3QFY18, which dropped 8.6% qoq and 26.7% yoy.

• 2QFY18 core net profit of RM99.7m, inched down 18.7% qoq and 23.6% yoy. We derived core net profit after adjusting for net foreign exchange losses, net losses on forex exchange borrowings and losses in financial derivatives instrument. The lackluster performance was mainly attributed by unfavourable performance in Construction, Property, and Industry segments which were slightly mitigated by better performance in plantation and infrastructure segments.

• Cumulatively, 9MFY18’s core net profit fell 10% yoy given negative growths in Industry, Property and Plantation segments which outweighed growths in Construction, and Infrastructure segments.

• Below expectations – 9MFY17 core net profit of RM350.2m was below our and consensus expectation by matching 62.9% and 57.9 % of full year forecast respectively. The negative variation was mainly bogged down by lackluster performance in manufacturing and quarrying segments (Industry) coupled with higher-than expected interest costs.

Comment

• Construction segment’s 3QFY18 performance tumbled with lower work recognition but still higher for 9MFY18. 3QFY18’s Revenue dropped 13.8% qoq, as such PBT down 19.4% qoq. However, 3QFY18’s PBT inched up 3% yoy despite revenue down 7.6% yoy, thanks to better margin. Meanwhile, 9MFY18’s PBT up 8.5%, backed by higher revenue (+5.9% yoy). Overall, Construction segment remained major contributor, contributing 30.9% to the group’s PBT.

• Construction order book stands at RM9.3b with target order book of RM3b (achieved 92% to date) in FY18. Thus far, the group has managed to secure 3 buildings works (UOB Tower2 – RM451m, HSBC office building - RM392m and Uptown 8 office tower – RM378m), a tollway (Salapur-Bijapur India highway – RM1.26b) and a Kuantan breakwater contract (RM280m).

• Property segment revenue growth failed to translate into PBT growth in view of recognition of unrealized foreign exchange losses. 3QFY18’s revenue up 28.8% qoq and 14.1% yoy but PBT down 16.5% and 31.8% yoy. Cumulatively, 9MFY8 PBT down 7.3% yoy despite with a 6.4% yoy growth in revenue. Lower PBT was mainly attributed to unrealized forex losses of RM13.8m (3QFY18) and RM9.6m (9MFY18) against unrealized forex gains of RM10.6m (3QFY17) and RM0.2m (9MFY17). Adjusting that, 3QFY18’ adjusted PBT up 23.8% and 9MFY18’s adjusted PBT inched up 3.1% yoy.
• Property segment underpinned by RM1.9b unbilled sales. The Group will continue to focus on township and landed development in Bandar Rimbayu, Shah Alam 2 and Seremban to drive sales. Moving forward, the group targets new sales of RM1.4b, which is on par with FY16 and FY17 new sales.
• Industry segment bogged down by lower sales volume and margins in the piles and quarrying sectors. 3QFY18’s PBT tumbled 29.8% qoq and 51.4% yoy as a result of lower sales volume (revenue down 12.6% qoq and 10.9%) as well as lower margins. Similarly, 9MFY18’s PBT slumped 34.6% given increased raw material prices and lower sales volume in the quarrying and domestic ready-mixed concrete sectors.

• Infrastructure segment growth buoyed by higher cargo throughput handled. 3QFY18’s PBT increased to RM42m from losses of RM9.7m in 3QFY17 as a result of higher cargo throughput handled and a net forex losses of RM47.9m. Meanwhile, cumulatively 9MFY18’s PBT up 431.3% given a net forex losses of RM76.8m in 9MFY17. After adjusting the one-off item, 9MFY18’s adjusting PBT surged 36.3% yoy. The stellar performance was mainly boosted by 23% growth in cargo throughput handled. Nevertheless, Malaysian Tollways sub segment 9MFY18’s revenue inched down 1 % yoy, as such PBT down 11.1% yoy with higher expenses. Nevertheless, outlook for the port would be backed by contribution from Alliance steel which will start operations in Malaysia-China Kuantan Industrial Park (MCKIP) this year.

• Plantation segment 3QFY18’s QoQ performance boosted by Malaysia Operation (MO) but 9MFY18’s performance whittled by higher expenses in both Malaysia and Indonesia Operation (IO). 3QFY18’s PBT surged 77.4% qoq and 12.2% yoy in view of better performance in MO given higher FFB production. Meanwhile, 9MFY18’s PBT decreased 42.7% yoy despite revenue growth 8% yoy. The lacklustre performance was mainly attributed to higher costs from increased replanting activities and minimum wage in MO coupled with higher overheads and additional depreciation in IO.

Earnings Outlook/Revision

• We slash our earnings forecasts for FY18F and FY19F by 19% and 25% respectively following our earnings cut in the Industry segment and Property segment.

Valuation & Recommendation

• Maintained BUY call with a lower target price of RM3.27 (RM3.47 previously) following our earnings cut. Our fair value for IJM also implies 24.1x FY2019 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 - 28 Feb 2018