FY20 CNP came above expectation mainly due to the lump sum recognition from Royal Mint Garden (London) which we did not take into account while the 3.0 sen dividend for FY20A was spot on. No change to FY21E earnings and introduce FY22E earnings of RM281m. Maintain MP with an unchanged SoP-derived TP of RM2.00.

Above expectation from lump sum recognition. FY20 core net profit (CNP) of RM338m is above our/consensus expectations accounting for 120%/113% of estimate, respectively. The main positive variance was the lump sum recognition of Royal Mint Gardens (London) property worth RM60m (pretax) in 4QFY20 which we did not account for. Announced dividend of 1.0 sen in 4QFY20, bringing FY20 dividends to 3.0 sen – which was spot on.

Highlights. 4QY20 CNP of RM148m was up 243% QoQ due to: (i) lump sum recognition of Royal Mint Gardens upon completion, and (ii) lower effective tax rate (-28ppt). We highlight that its property segment lifted the group’s earnings this quarter while other divisions such as construction, industry and infrastructure actually deteriorated due to the MCO. FY20 CNP of RM338m was down 22% YoY from new perpetual sukuk obligations amounting to RM43m and lower PBT contribution from construction (-26%) and infrastructure (-42%) divisions. Construction margin was down (-2ppt) due to mix of better margins job in progress last year and partially due to impact from MCO. Meanwhile, infrastructure division suffered losses in their India concessions this year.

Outlook. Forward earnings will be driven by current construction orderbook of RM4.5b (2x cover), unbilled property sales of RM1.1b (0.9x cover) and stronger contributions from its Kuantan Port.

No change in earnings. As the outperformance in FY20 was purely due to the lump sum recognition of Royal Mint London which is not recurring, we keep our FY21 estimates unchanged. Subsequently, we introduce our FY22E earnings of RM281m.

Maintain MARKET PERFORM with a SoP-based TP of RM2.00. We find IJM's overly diversified income base working against its favour by capping meaningful earnings growth. Overall, its Kuantan Port is registering healthy volume growth, construction order-book is dwindling, unsold property remains high, CPO prices are challenged by the low crude prices and its new toll asset (WCE) is in its infancy a.k.a cash burning stage. We feel these conditions may not be the best concoction to attract investors.

Key downside risks for our call are: (i) lower-than-expected margins, and (ii) slower-than-expected progress in construction works and clearing of property inventories.

Source: Kenanga Research - 29 Jun 2020