1QFY22 CNP of RM50m came below expectations on weaker-than-expected toll road contributions resulting from the FMCO starting June 2021. Meanwhile, 1QFY22’s property sales of RM0.7b, cargo throughput of 5.9m tonnes and construction wins of RM586m are tracking in line with our assumptions. Lower FY22E earnings by 32% on: (i) lowered toll traffic volumes, and (ii) omission of IJMPLNT’s contributions starting 2QFY22 upon conclusion of the disposal. Reiterate OP with a lower SoP-TP of RM2.05.

Below expectations. 1QFY22 CNP of RM50m came below our/consensus expectations at 15%/14% of estimates, respectively. The underperformance is due to weaker-than-expected contributions from its Malaysian toll roads whereby traffic volumes were impacted by the FMCO imposed in June 2021. No dividend as expected.

Highlights. 1QFY22 CNP of RM50m decreased 75% QoQ on the back iof lower revenue (-18%) as the FMCO imposed in June 2021 halted operating activities for all its business segments for a month within the quarter. YoY, 1QFY22 CNP swung back to the black from a loss position of RM46m in 1QFY21 as the preceding quarter was heavily impacted by the initial lockdown measures which lasted longer (i.e. 2 months) and were also stricter.

Property sales broadly within. 1QFY22 property sales of RM0.7b was strong – accounting for 50% of our FY22E target of RM1.4b. Nonetheless, we deem it broadly within as this quarters’ strong sales were backed by huge launches worth RM1.0b within the quarter. The remaining three quarters will only have RM0.6b worth of launches.

Kuantan Port’s 1QFY22 cargo throughput of 5.9m tonnes is within our estimate of 30m tonnes (at 20%). We expect pickup in volumes in tandem with Alliance steel’s (Kuantan’s Ports biggest contributor) gradual ramp-up in production which was previously restricted by the lockdowns.

YTD construction replenishment of RM586m is tracking our target replenishment of RM1.4b. We anticipate further job wins from ECRL as IJM stands a good chance to secure works traversing through its 60%-owned Kuantan Port. Outstanding order-book stood at RM4.0b providing c.2.5x cover.

IJMPLNT will be deconsolidated in the upcoming quarterly results  (2QFY22) upon the completion of disposal to KLK. In the shareholders’ circular published, IJM guides a disposal gain of RM700m and a special dividend worth RM542m (c.15.0 sen/share).

Earnings revision. Lower FY22E earnings by 32% after: (i) reducing toll roads earnings from lower traffic assumptions and (ii) stripping contributions from IJMPLNT starting 2QFY22. Previously, we only excluded IJMPLNT’s contribution starting FY23. FY23E earnings are kept unchanged.

Maintain OP on lowered SoP-TP of RM2.05 (from RM2.30) as we adjust our SoP to only include the excess cash* derived from the disposal of IJMPLNT.

*excess cash (RM688m) = total proceeds from disposal (RM1,534m) – allocated special dividend (RM542m) – cash earmarked for working  icapital purposes (RM304m).

Source: Kenanga Research - 25 Aug 2021