1HFY21 CNP of RM58m came within expectations but a 2.0 sen dividend surprised on the upside. Separately, a new contract win of RM158m lifted YTD order-book replenishment to RM0.9b, exceeding our RM0.75b target. Consequently, we raise our FY21 and FY22 order-book replenishment to RM1.4b each (from RM0.75b) and upgrade FY21E/FY22E earnings by 0.7%/4.4%. Maintain OP on higher SoP-derived TP of RM2.20 (from RM2.00) after incorporating these new wins and rolling valuation base year forward to FY22.

Within expectations. 2QFY21 CNP of RM103m lifted 1HFY21 CNP to RM58m, accounting for 25% of both our and consensus FY21E estimates of RM230m. This is within expectations as we expect 2HFY21 to fare better without severe lockdowns as faced in 1QFY21 (April – June 20). 1HFY21 property sales of RM720m also came within our RM1.2b target.

Surprise dividend. A 2.0 sen dividend announced was a pleasant surprise as we had not anticipated any FY21 dividends to be distributed given the pandemic.

Highlights. 2QFY21 CNP of RM103m returned to the black from RM46m loss suffered in 1QFY21 as IJM rebounded from a MCO-laden quarter. Delving into the segmental level, we note that all segments rebounded strongly with each reporting higher revenue (+62%) and PBT (+3.9x). Unsurprisingly, 1HFY21 was down 61% YoY due to the Covid-19 pandemic lockdowns.

New replenishments exceeded target. Alongside results, IJM announced a new win worth RM315m (effective 50% stake of RM157.5m) at “The Lights, Penang” from IJM-Perennial. With this new win, total YTD replenishment of RM899m has exceeded our FY21E target of RM750m. Consequently, we upgrade both FY21 and 22 replenishment targets to RM1.4b (from RM0.75b) each where we foresee potential contract wins from: (i) remaining IJM Perennial residential portion worth c.RM150m (50% stake), (ii) ECRL, (iii) Pan Borneo Sabah, and (iv) other building works.

CMCO reintroduced in October will dent 3QFY21 earnings as traffic volume at their tolls which had almost fully recovered post-May lockdowns is now back down by 30-50%. Nonetheless, we think this CMCO would have minimal progress disruptions to their construction division as IJM’s sites remain Covid-19 free.

Upgrade FY21E/FY22E earnings by 0.7%/4.4% after imputing higher construction replenishment of RM1.4b (from RM0.75b) each. Forward earnings will be driven by current construction order-book of RM5.1b (2.5x cover), unbilled property sales of RM1.2b (1x cover) and stronger contributions from its Kuantan Port.

Maintain Outperform on higher TP of RM2.20 (from RM2.00) on: (i) rolling forward our valuation base year to FY22 (from FY21) and (ii) higher construction earnings post upgrade to FY21E/FY22E replenishment targets. As global markets pivot towards a Covid-19 recovery narrative, we believe IJM would continue to perform well as most of its divisions were hit hard by the pandemic – providing further room for recovery.

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 - 26 Nov 2020