Results

• IJM reported a headline PATAMI of RM93.4m for its 3QFY19, which surged 362.2% qoq but down 7.8% yoy.

• Core earnings wise, IJM reported a net profit of RM69.7m, which slid 30.5% qoq and 34.9% yoy.

We derived our core net profit after adjusting for net gains on forex exchange, net losses on disposal of investments or properties, losses in financial derivatives instrument and unrealized foreign exchange losses in plantation segment.

• Unfavourable QoQ and YoY performances were due to adverse performances in Construction, Industry and Plantation segments amid better performances in Property and Infrastructure segments.

• Below expectations – 9MFY18 core net profit of RM302.9m only meets 68.9% and 69% of ours and consensus’ full year forecast respectively. Undesirable performance was mainly bogged down by losses in Plantation segment in view of soft CPO price and higher cost.

Comment

• Construction segment performance fazed by slowed down progress as new projects still yet to reach optimal construction phase. PBT down 11.1% qoq and 34.6% yoy in view of slower work progress. 9MFY19’s PBT down 34.9% yoy with revenue declined 13.4% yoy for the same reason. Besides that, lower construction (-2.4 points to 7.3%) margins further deteriorated the performance.

• Construction order book stands at RM8.4b. A detail breakdown of job scope consists of 30% for buildings works, 41% for roads works, and 29% for other infrastructure works.

• Property segment, the saviour for the group. Segmental PBT surged 197.4% qoq and 216.4% yoy. Overall, 9MFY19’s PBT increased 66.3% yoy, underpinned by higher revenue that growth 17.7% yoy. The stellar performance was backed by the launching of a condominium project in Penang, higher sales achieved from existing inventory and disposal certain parcels of commercial land. In addition, better margin derived from the current development projects also helped to boost the bottomline.

• Property segment underpinned by RM2.2b unbilled sales with RM1.2b sales achieved during 9MFY19.

We believe the group is able to achieve its target new sales of RM1.6b in FY19, mainly underpinned by its township and landed developments in Bandar Rimbayu, Shah Alam 2 and Seremban 2 to drive sales.

• Industry segment’s sales volumes and margins in piles remained uninspiring. Segmental PBT was down 7% qoq and 22.5% yoy. Similarly, 9MFY19’s PBT slid 36.1% yoy with a lower revenue, registering a negative growth of 19.7% yoy.

• Infrastructure segment was lifted by better performance under Malaysia tolls operation.

Segmental adjusted PBT increased 39.3% qoq and 51.1% yoy in view of better tolls operation in Malaysia. Meanwhile, 9MFY19 PBT was down 32% yoy. After adjusting for disposal loss and forex loss, ytd adjusted PBT was up 25.3%. The better performance was mainly attributed to continuous growth in Besraya Expressway and compensation from government (for not having toll hikes).

• Plantation segment remained tepid dragged by soft CPO price and higher operation cost. After adjusted for unrealised forex gains on the US dollar denominated borrowings, Plantation segment recorded loss before tax (LBT) of RM20.2m in 3QFY19 against LBT of RM9.1m in 2QFY19 and PBT of RM28.6m in 3QFY18. Nevertheless, YTD performance slid into loss of RM24.8m as compared to 9MFY18 PBT of RM80.9m. This was attributable to weak CPO price and production cost pressure in Malaysia operation coupled with high fixed costs in Indonesian operation.

Earnings Outlook/Revision

• We tweak down our earnings forecasts for FY19 and FY20 by 10.8% and 5.7% in view of losses in Plantation segment and its challenging outlook.

Valuation & Recommendation

• Downgraded to HOLD from BUY call with a lower target price of RM1.99 (previously was RM2.05) after lowering our fair value for IJM plantation under SOP valuation. Our fair value for IJM also implies 16.4x FY2020 PER.

• We opine that current share price is fairly valued at this moment following its recent rally. Major downside or upside risks for our call will be the negative or positive newsflow of cancellation/revival of mega infrastructure projects as well as valuations adopted by the govt. for the acquisition of toll concessions which are owned by the Group.

Source: JF Apex Securities Research - 27 Feb 2019