INVESTMENT HIGHLIGHTS

• 3MFY19 results lower than expected

• Margins from key segments eroded

• Reaffirm earnings estimates on the back of sturdy orderbook of RM8.8bn

• Altogether, we maintain our BUY recommendation with TP of RM3.30 per share

3MFY19 results disappointing. IJM’s 3MFY19 earnings of RM62.7m (-50%YoY) came in lower than expectations. Its net profit accounted for 18.0% and 14.1% of ours and consensus’ full-year forecasts respectively. The weak result is in tandem with its 3MFY19’s revenue which tapered to RM1.44bn (-2.0%YoY) as it was scuppered by higher expenses, namely (i) forex differences of RM71.0m, and (ii) administrative expenses of RM85.4m.

Depressed margins from key segments. As a results of higher expenses, overall PATAMI margin was eroded registering only 4.0% (- 5ppts). Margins were significantly compressed as results of lower billing recognition and lower cargo throughput in Kuantan Port. Its construction segment recorded RM39.6m (-32.0%YoY) at PBT level while infrastructure segment only inked RM24.8m (-62.0%YoY). Furthermore, plantation segment also recorded a humdrum result of RM-26.2m loss (- 206.0%YoY) due to forex losses of USD denominated debt. Nonetheless, we believe that marginal compression will be short-lived as the company will likely be able to recover on the back of its track record and management’s experience.

Reaffirm earnings estimates on the back of sturdy orderbook.

We maintain our earnings estimates on the back of sturdy orderbook; IJM’s total outstanding orderbook is currently RM8.8bn (which is approximately 48 months or FYE19 1.5x revenue cover).

Maintain BUY. We reiterate our BUY recommendation with an SOPbased TP of RM3.30 per share.

Source: MIDF Research - 29 Aug 2018