FY17 CNP was within our, but below streets?, full-year estimates, at 98% and 88% respectively. 4.5sen dividend was declared, bringing the full-year dividend to 7.5sen higher than our full-year dividend expectation of 6.1sen. No changes to FY18E core earnings while introducing our FY19E CNP of RM661.0m. Maintain MARKET PERFORM with an unchanged Target Price of RM3.51.

In line with our estimate. FY17 CNP of RM539.1m (after excluding land disposal gains of RM100.0m) came inline with our but below streets? expectations, at 98%/88% of our/streets? full-year estimates. Disappointment from streets? expectation could be driven by several factors, i.e. (i) lower-than-expected contribution from its infrastructure division, and (ii) lower-than-expected margin from its development division and etc. 4.5sen dividend was declared, bringing the full-year dividend to 7.5sen higher than our full-year dividend expectation of 6.1sen.

Results highlight. FY17 CNP grew by 8%, YoY underpinned by several factors, i.e. i) growth in revenue (+18%) driven by all its divisions that registered growth in revenue that ranges between 16%-52%, except for its infrastructure division, (ii) lower interest cost (-15%), and (iii) higher contribution from associates (+311%). On a QoQ basis, 4Q17 CNP only saw a marginal increase of 1% despite revenue growth of 5% as its performance was bogged down by: (i) higher interest expense (+45%) and ii) higher minority interest (+471%).

Outlook. Moving into FY18, management set an orderbook replenishment target of RM3.0b (inline with ours) as they remain positive with the local job prospects underpinned by contracts from LRT3, Pan Borneo Sabah, Kuantan Port infra works, building jobs from the private sector, and also ECRL. Currently, IJM?s outstanding order-book and unbilled sales stand at c.RM8.6b and RM1.7b, respectively, providing earnings visibility at least for the next 3-4 years.

On the property front, they are looking to launch more affordable priced project at the range of RM350.0k to RM750.0k which consists of landed residential in Rimbayu, high-rises in Riana Dutamas, Segambut and The Light Waterfront, Penang with a total target sales of RM1.4b. Apart from that, management also indicated that they are looking to divest their non-core assets for the funding requirement of its development in Penang.

Estimates unchanged. Post results, we make no changes to our FY18E CNP of RM612.0m and introduce our FY19 CNP of RM661.0m.

Maintain MARKET PERFORM. We are keeping our MARKET PERFORM call on IJM for now with an unchanged SoP-driven Target Price of RM3.51. However, we do look forward to review our Target Price higher on the back of earnings upgrade should its construction division surpasses our replenishment target of RM3.0b.

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

Source: Kenanga Research - 26 May 2017