IJM’s 9MFY24 results beat expectations due to better property billings which also anchored a 34% jump in its 9MFY24 core profit.  YTD, its construction job wins stand at RM3.62b, already surpassing its FY24F target and our assumption of RM3b. We raise our FY24-25F net profit forecasts by 11% and 16%, respectively, lift our TP by 10% to RM2.54 (from RM2.31) and maintain our OUTPERFORM call.

IJM’s 9MFY24 core profit of RM303.2m beat expectations, coming in at 80% and 81% of our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast came largely from higher-than-expected property billings. No dividend was declared as expected as it usually pays half-yearly dividend in the past.

YoY, its 9MFY24 revenue jumped 28% on a broad-based improvement across all segments with construction (+43%) attributed to higher construction work activities, property development (+28%) led by strong property sales as well as sale of industrial land in 2QFY24, manufacturing & quarrying (+22%) driven by higher deliveries of piles, quarry and ready-mixed concrete, and infrastructure (+12%) due to the recovery in cargo throughput at the port.

Meanwhile, its core profit leapt 34% thanks largely to strong property development earnings (+97%) which was driven by higher sales, improved margins on a better product mix, the sale of industrial land with gain of c.RM20m and an unrealised forex gain of RM35.2m. However, construction earnings fell 27% on higher raw material and prolongation costs and low profit recognition from new projects at initial stages.

QoQ. Its 3QFY24 revenue was flattish (+1%) as higher revenues from property development (+8%) and construction (+3%) were offset by lower revenues from manufacturing & quarrying (-7%) and infrastructure (-1%). Its core profit contracted by 31%, largely due to higher-than-expected taxation (+50% QoQ).

Outlook. We expect a significant revitalisation of the construction sector in 2024 backed by: (i) the roll-out of the RM45b MRT3 project, RM9.5b Bayan Lepas LRT and six flood mitigation projects reportedly to be worth RM13b, and (ii) the vibrant private sector construction market, underpinned by massive investment in new semiconductor foundries and data centres. We understand that IJM is also eyeing work packages from various projects in East Malaysia and Indonesia.

Forecasts: We upgrade our FY24-25F earnings forecasts by 11% and 16%, respectively, to adjust for higher property development earnings in FY24 and construction earnings in both FY24-FY25 given that its YTD FY24 new order book of RM3.62b has exceeded our assumption of RM3.0b. We increased our new orderbook assumptions for FY24/FY25 to RM3.7b/RM4.5b from RM3.0b/RM4.0b, respectively.

We also introduce our new FY26F numbers with earnings projected to grow at 8% on the back of new order book assumption of RM3.5b. We project a NDPS of 8.0 sen in FY26 which is the same assumption for FY24-25F NDPS.

Valuations. Correspondingly, we lift our SoP-driven TP by 10% to RM2.54 (see Page 3) from RM2.31 previously as we roll over our valuation base year to FY26F (from FY25F), on unchanged 18x PER valuation for its construction business, which is in-line with our valuation for big cap construction companies, i.e., GAMUDA (OP; TP: RM5.45) and SUNCON (OP; TP: RM3.00). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like IJM for: (i) it is poised to garner a slice of action in the imminent mega rail projects, i.e., MRT3 and Bayan Lepas LRT given its involvement in the previous MRT and LRT projects, (ii) its strong earnings visibility underpinned by an outstanding construction orderbook of RM6.6b and new property sales of RM1.4b, and (iii) Kuantan Port’s position as the largest port in the East Coast capturing export and import activities growth. Maintain OUTPERFORM.

Risks to our call include: (i) sustained weak construction jobs flow, (ii) project cost overrun and liabilities arising from liquidated ascertained damages (LAD), and (iii) rising cost of building materials.

Source: Kenanga Research - 29 Feb 2024