FY19 CNP of RM415.9m came in above expectations, making up 114%/106% of our/consensus full-year estimates. A 2.0 sen dividend was declared, bringing the full-year dividend to 4.0 sen which is below our expectation of 5.0 sen. No changes to FY20E earnings, introduce FY21E earnings of RM471.6m. Maintain UP with an unchanged SoP-driven TP of RM1.80.

Above expectations. FY19 CNP of RM415.9m came in above

expectations, making up 114%/106% of our/consensus full-year estimates. The positive variance was driven by better-than-expected earnings from its property development division and IJMPLANT’s CNL, which is lower than our initial expectation. A 2.0 sen dividend was declared, bringing the full-year year dividend to 4.0 sen, which is below our expectation of 5.0 sen.

Results highlight. FY19 CNP is flattish at -1%, YoY amid lower

revenue (-6%). While most of its division registered negative growth or swung into losses, its property development division registered 83% growth in pre-tax profit underpinned by 15% growth in revenue. That said, its infrastructure division also registered positive performance as compared to losses back in FY18. Lower tax and minority interest contribution also help cushioned the impact from the decline in revenue. QoQ, 4Q19 CNP was up 104% despite a lower revenue (-7%) as it saw

sharp improvements in pre-tax margins to 24% (+12ppt), driven by improvements in most of its division. Its construction pre-tax profit increased by 81%, due to margin expansion to 14% (+7ppt).

Outlook. IJM’s outstanding order-book currently stands at c.RM7.8b,

while its property unbilled sales are c.RM2.1b with visibility for the next 3-4 years, and management is on-track to meet our/their target sales of RM1.6b as they have registered RM1.6b sales in FY19. As for its plantation division, we continue to expect high production costs to crimp into margins in the near-term due to full overhead charges on its very young estates in Indonesia.

Earnings downgrade. No changes to our FY20E earnings, introduce

FY21E CNP of RM471.6m.

Maintain UP with unchanged SoP-driven TP of RM1.80, as we

believe that the recent share price rebound has fully priced in the positives, coupled with the uninspiring outlook on the sectors that IJM is involved in (i.e. construction, property, industry, and plantation) have been impacted by various factors. Our TP implies FY20E PER of 14.1x which is above KLCON’s 10-year average of 13.3x.

Key upside risks for our call are: (i) higher-than-expected margins,

and (ii) higher than expected progress in construction works.

Source: Kenanga Research - 30 May 2019