INVESTMENT HIGHLIGHTS

• FY17 Results broadly in line.

• PBT Expanded

• Reaffirm earnings estimates for FYE18-FYE20

• Positive prospect beckons

• Nonetheless, we maintain our BUY recommendation with TP of RM4.00 per share

FY17 Results broadly in line. IJM’s FY17 earnings of RM653.7m (- 17.0%YoY) came in line with ours and consensus estimates. Its net profit accounted for 94% and 108% of ours and consensus’ full-year forecasts respectively. Notably, IJM’s revenue increased to RM6.06bn (+18.0%YoY) lifted by improvement from the contribution key segments of; (i) construction; RM2.1bn (+52.0%YoY, 35.0% of TR*), (ii) property; RM1.4bn (+21.0%YoY, 23.3% of TR), (iii) plantation; RM753.7m (+35.0%YoY, 12.5% of TR) and (iv) industry; RM1.13bn (+16.0%YoY, 18.8% of TR). However, the upbeat results was tapered by; (i) lower other income of RM229.6m (-55.0%YoY) and, (ii) higher tender expenses of RM200.1m (-10.0%YoY).

PBT Expanded. Owing to operational efficiency, PBT from key segments expanded i.e. (i) plantation; RM168.5m (+234.0%YoY, 16.6% of TPBT*), (ii) property; RM303.2m (+90.0%YoY, 30.0% of TPBT) while (iii) construction; RM216.7m (+27.0%YoY, 21.4% of TBPT). The improvement in IJM’s margin is a pleasant surprise. We reckon the encouraging margin profile lends credit to management focusing is optimizing IJM’s cost structure.

Reaffirm earnings estimates. We maintain our earnings estimates; IJM’s orderbook is currently RM9.36bn (which is approximately 48 months or 1.4x revenue cover). Therefore, we maintain our estimates on the basis of its sturdy orderbook and its project’s quality orderbook (domestically located). Imminent risks are execution risk, delays and gaps in billings recognition.

Positive prospect beckons. In our last report (24.2.2017) we have reasoned that trimming our estimates is inevitable if the FYE17 result delivers severe depletion of below 65% divergence from our earnings target. Now, since IJM’s FY17 results are broadly in line with our expectation we reiterate our forecast for FYE18/FYE19/FYE20. We confident that management would be able to weather ‘hard landing’ in earnings from lower marginal projects. Its cash flow from operations increased from RM758.4m to RM1.4bn (+96.5%YoY). (Figure 1)

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

Source: MIDF Research - 26 May 2017