1H17 CNP of RM268.6m was within our but broadly within streets? expectations, accounting for 49% and 44%, respectively. Property sales of RM700.0m is on track to meet our and management?s target of RM1.4b for FY17. A 3.0 sen dividend was declared as expected. No changes in FY17-18E CNP. Maintain MARKET PERFORM with an unchanged Target Price of RM3.51.

Within expectations. 1H17 CNP of RM268.6m is within our expectation but broadly within streets?, at 49% and 44% respectively. We believe that the street might be slightly aggressive on their margin assumptions for the development division. Property sales of RM700.0m are on track to meet our and managements target of RM1.4b. A 3.0 sen interim dividend declared as expected.

Result highlights. 1H17 CNP was down by 12% despite an 11% growth in revenue. The main drag on its earnings was due to the decline in several divisions, i.e. property development, industry, infrastructure and investments, which saw a decline in pre-tax profits by 33-82% due to the compression in margins. On a positive note, its construction division saw 32% growth in pre-tax profit as driven by the tremendous improvement in revenue by 83%, underpinned by steady progressive billings from on-going projects.

QoQ, 2Q17 CNP improved by 34% on the back of higher revenue that increased by 27% driven by the improvements from most of its divisions except property. Positively, its property division has seen recovery in pre-tax margin from 7% to 12% despite the 8% decline in property revenue owing to better product margin mix and potential cost savings.

Outlook. Currently, IJM?s outstanding orderbook and unbilled sales stand at c.RM8.2b and RM1.7b, respectively, providing earnings visibility at least for the next 3-4 years. While IJM had become more selective in jobs, we are still expecting IJM to bag high-profile jobs like LRT3 and highway jobs. On the property front, they are looking to launch more affordably priced project at the range of RM350.0k to RM750.0k.

Estimates unchanged. Post results, we make no changes to our FY17E and FY18E CNP of RM549.0m and RM612.0m, respectively.

Maintain MARKET PERFORM. We continue to reiterate our MARKET PERFORM call on IJM with an unchanged SoP-driven Target Price of RM3.51, as we believe that the weakness in the property market and infrastructure division will be offset by potential positive news flow from the construction sector.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) delays in construction works.

Source: Kenanga Research - 29 Nov 2016