1QFY21 core net loss (CNL) of RM46m was well expected given the quarter was at the peak of the MCO lock-downs. With share price sliding 39% in the last two months leading to current FY21E PBV of 0.44x being lower than GFC trough (of 0.51x), we remain convicted and maintain OP with an unchanged TP of RM2.00. The upcoming MSCI rebalancing could present an accumulation opportunity to ride on a potential sector re-rating on anticipation of pump priming measures from the approaching Budget 2021/12MP.

Within expectations. Despite 1QFY21 registering a CNL of RM46m against our/consensus full year profit estimates of RM230m/RM277m*, it was well expected given the quarter was at the peak of the MCO lockdowns. We expect the subsequent three quarters to deliver much better numbers to claw back this quarters losses. No dividends as expected.

*We believe consensus have omitted annual perpetual sukuk payment of c.RM48m in deriving their core earnings – which explains the discrepancy between our estimate and their numbers.

Highlights. QoQ, 1QFY21 CNL of RM46m nosedived from a profit of RM148m as: (i) the longer MCO lockdowns of two months vs. two weeks stifled all business operations, and (ii) previous quarter had a one-off recognition from a London property project upon handover worth RM60m at the pre-tax level. YoY, 1QFY21 was also lower against 1QFY20 profit of RM61m mainly from the MCO lockdowns which dragged revenue 43% lower.

Outlook. Forward earnings will be driven by outstanding construction order-book of RM5.1b (2.5x cover) and unbilled property sales of RM1.2b (1x cover). YTD replenishment of RM600m accounted for 80% of our RM750m full-year target.

No change in earnings post results.

Removal from MSCI global index would likely mark a halt in selling. On 31st August 2020, IJM would be removed from the MSCI Global Index and funds tracking the index would sell the stock for rebalancing purposes. We see opportunity in this situation as historically, past MSCI removals such as IOIPG (28th May 2019), SPSETIA (26th Nov 2019) and SIMEPROP (26th Nov 2019) rebounded right after the MSCI rebalancing date. This phenomenon can be explained by the drying up of sellers and re-emergence of buyers.

Maintain OUTPERFORM with an unchanged SoP-derived TP of RM2.00. With the steep fall in share price (-39%) over the past two months, IJM’s current FY21E PBV of 0.44x is even lower than the GFC trough of 0.51x and is extremely appealing especially against the current backdrop whereby the anticipation of pump priming measures from Budget 2021 and 12MP could lead to a blanket re-rating of the sector.

Source: Kenanga Research - 27 Aug 2020