INVESTMENT HIGHLIGHTS

• Results below expectation

• Infrastructure results back-paddled

• Maintain our estimates for FYE17/FYE18

• Altogether, we reiterate our BUY stance with TP of RM4.00 per share

Results below expectations. IJM’s 9MFY17 earnings of RM417.7m (- 44%YoY) came in below ours and consensus estimates. Its net profit accounted for 59.8% and 69.3% of ours and consensus’ full-year forecasts respectively. The deviations for estimates are influenced by lower contribution from Kuantan Port operations and plantations sector despite the positive direction of the construction segment.

Infrastructure results back-paddled. The results was due to lower revenue contribution from infrastructure segment which decreased from RM810.5m in 9M16 to RM432.2m in 9M17 (-47% YoY). Consequently, at the PBT level the infrastructure segment results was dragged lower from RM466.8m in 9MFY16 to a dismal RM26.7m (-94% YoY) due to lower cargo throughput from the moratorium on bauxite mining.

Impact on earnings. Despite the negative milieu, IJM has announced on the 23rd of February, 2017 that it has accepted the letter of award from MFBBCC Retail Sdn. Bhd. for a design and build contract for super/sub structure, infrastructure and landscaping job worth RM1.16b, As a result, the orderbook increased to RM9.36bn from RM8.2bn (+14% YoY) (which is approximately 48 months or 1.4x revenue cover). Thus, we maintain our estimates on the basis of its sturdy orderbook and its project’s domestic location to minimize any forex exposure or execution risk.

Positive prospect. As a result, we expect that the transfer of IJM’s revenue from its orderbook to its bottom line will likely happen to evenout weak results from the infrastructure segment in upcoming quarters. As we have reasoned before, we will only trim our estimates if the FYE17 result delivers severe depletion of below 65% divergence from our earnings target. Furthermore, its operating margin has normalized for the past 2 years, thus we do not foresee that it will experience any set-back based on marginal erosion.(Figure 1)

Maintain BUY. We reaffirm our BUY recommendation with an unchanged SOP-based TP of RM4.00 per share.

Source: MIDF Research - 24 Feb 2017