1Q20 CNP of RM69.9m makes up 15%/16% of our/consensus full-year estimates. However, we deem its performance as broadly in-line, expecting progress for its existing projects to pick up in 2H20. No dividends were declared, as expected. No changes to FY20-21E earnings. Maintain UP with an unchanged SoP-driven TP of RM1.80.

Broadly within. 1Q20 CNP of RM69.9m makes up 15%/16% of our/consensus full-year estimates. However, we deem the performance to be broadly in line as we expect progress for its existing projects to pick up in 2H20. No dividends were declared, as expected.

Results highlight. 1Q20 CNP fell 48% YoY, amid higher revenue (+7%) owing to higher effective minority interest and tax. IJM contributed RM21.0m to minorities (of which RM10.5m arises from the interest payment for its perpetual sukuk.) vs. gain of RM1.9m back in 1Q19. Positively, most of its divisions registered positive growth operationally with pre-tax profits growing at 2%-79%, except for its plantation division, which is still in losses.

QoQ, 1Q20 CNP was down 45% due to sharp decline in associate contribution (-86%) coupled with margin compressions, underpinned by its construction and property development divisions. Pre-tax margins for these two divisions came down by 6-10ppt to range of 8%-10%, respectively.

Outlook. IJM’s outstanding order-book currently stands at c.RM6.1b, while its property unbilled sales are c.RM2.0b with visibility for the next 3-4 years, and is on-track to meet our target sales of RM1.6b in FY20. 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 for its very young estates in Indonesia.

Earnings unchanged. No changes to our FY20-21E earnings.

Maintain UP with an unchanged SoP-based TP of RM1.80, as we believe that the recent share price rebound had fully priced in most of the positive anticipations, coupled with the uninspiring outlook on the sectors that IJM is involved in (i.e. construction, property, industry, and plantation). 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 - 29 Aug 2019