INVESTMENT HIGHLIGHTS

• 12MFY18 results lower than expected

• Margins from key segments eroded

• Reiterate earnings estimates on the back of sturdy orderbook of RM9.0bn

• Altogether, we maintain our BUY recommendation with TP of RM3.90 per share

12MFY18 results lower. IJM’s 12MFY18 earnings of RM349.8m (- 46.0%YoY) came in lower with ours and consensus’ estimates. Its net profit accounted for 70.0% and 66.9% of ours and consensus’ full-year forecasts respectively. The weak result is in tandem with its FY18’s revenue which decreased from RM6026.0m to RM6065.3bn (-1.0%YoY) scuppered by higher expenses of; (i) forex differences; RM3.7m (- 112%YoY), (ii) tender expenses; RM185.6m (-26.0%YoY) and (iii) other operating expenses RM75.3m (-14.0%YoY). We attribute the negative results to the unexpected reversal in the plantation segments i.e. volatile commodities coupled with reversal of gains due to higher USD rate.

Margins from key segments eroded. As a results of higher expenses, overall PATAMI margin was eroded registering only 6.0% (-5 ppts). Despite that we are sanguine on the prospect of marginal improvement for the next quarter which we reckon that USD rate vs. Indonesian Rupiah will stabilize for the plantation segment.

Reiterate earnings estimates on the back of sturdy orderbook. We maintain our earnings estimates; IJM’s total outstanding orderbook is currently RM9.0bn (which is approximately 48 months or FYE19 1.44x revenue cover). The key risk facing IJM are; (i) abolishment of tolls and (ii) lower orderbook replenishment rate. Apart from that, we surmise that its business model its ring fenced by its quality assets such as Kuantan Port and India’s Solapur-Bijapur tollway

Maintain BUY. We reiterate our BUY recommendation with an adjusted SOP-based TP of RM3.90 per share.

Source: MIDF Research - 31 May 2018