INVESTMENT HIGHLIGHTS

• Results were below expectations, accounting for 40.9% and 40.6% of ours and consensus’ respective yearly estimates

• Plantation still in the red due to pressure on margin

• Construction remains the biggest contributor but the amount logged was lower

• We maintain our NEUTRAL call with an adjusted TP of RM1.85

Below expectations. The group’s 9MFY19 revenue contracted by - 7.6%yoy to RM4.3b. The negative deviation was attributable to slowdown in key segments namely construction, industry and plantation. For 9MFY19, these segments recorded revenue decline of -13.9%, - 19.7%yoy and -23.1%yoy respectively. Consequently, group’s PATAMI fell -45.8%yoy to RM178.1m in 9MFY19. The quantum was below ours and consensus’ expectations at 40.9% and 40.6% of respective yearly estimates.

Plantation still in the red. The aberration from our estimates was consequent to dismal overall margin fetched and dull revenue in the period. Most notably, the plantation segment (which made up the core businesses) recorded the biggest drop in revenue (-23.1%yoy), consequent to lower commodity prices. Its margin remained in the red, partly due to rising production cost in Malaysian operations.

Construction remains the biggest contributor but the amount logged was lower. In 9MFY19, construction income was significantly lower (-37.4%yoy) as new projects remained at infancy stages. A notable project win in CY18 was the LRT3 contract worth RM1.1b, which was awarded in March. We noted that the project has run into a delay, subsequent to government’s decision to revise the project costs. In FY20, we expect the contribution from LRT3 to be meaningful given the recent announcement by MRCB-GK JV that works will restart in 2HCY19.

Changes to earnings. Given the pronounced setback in IJM’s earnings, we adjusted our net profit estimates lower by -21.8% and -21.0% for FY19F and FY20F respectively.

Maintain our NEUTRAL call with a lower TP of RM1.85. The TP was derived from multiples valuation, pegging the FY20 BVPS to 0.7x PBV. Currently, IJM’s unbilled jobs stand at approximately RM8.4b that equates to 3.7 years of income visibility. For property segment, we expect the environment to remain challenging given the overall soft market for at least in the near term.

Source: MIDF Research - 27 Feb 2019