INVESTMENT HIGHLIGHTS

• 1QFY20 PATAMI of RM59.4m (-5.3%yoy) came in below our and consensus estimates, accounting for 13.6% and 13.3% respectively

• Construction segment recorded RM518.0 (-1.7%yoy) of revenue in 1QFY20, to earn RM40.6m (+2.3%yoy) PBT

• Upgrade to NEUTRAL with an adjusted TP of RM1.95

1QFY20 PATAMI of RM59.4m (-5.3%yoy) came in below our and consensus estimates, accounting for 13.6% and 13.3% respectively. Contraction was largely due to plantation segment, with revenue contribution recorded at RM133.1m (-27.3%yoy). The segment turned red at PBT, recording the a loss of –RM5.4m. Lower CPO sales volume and decline in commodity prices were factors steering down the earnings. Positively, the losses drawn from plantation were muted by the stark increase of infrastructure earnings. Earnings from the segment climbed to RM44.4m (+78.7%yoy) in tandem with the expansion of cargo throughput handles by the group’s port concession.

Construction and property results, being the key segments. Construction segment recorded RM518.0 (-1.7%yoy) of revenue in 1QFY20, to earn RM40.6m (+2.3%yoy) PBT. Despite the decrease in revenue, profit was higher underpinned by a slight margin expansion. Meanwhile, property results came in positively to record RM498.6m (+43.9%yoy) revenue. Accordingly, PBT inched up to RM45.9m (+2.1%yoy), thanks to the higher sales recorded and the completion of some development projects in 1QFY20. IJM’s property recorded RM2.0b of unbilled sales, pending conversion to revenue. Despite the significant amount, we opine key issues like price affordability and overhang of high-rise properties will continue to be visible for the segment.

Earnings forecast slashed by -6.6% and -5.7% for FY20 and FY21 respectively, stemmed from our revision for the full year. In our view, IJM Corp will continue facing challenges on the back of soft property market and slowdown in construction job flows. We saw its share price has priced-in the improved sentiment of construction sector amidst the return of mega projects. Based on our belief, we believe that the risk-reward is balanced at revised TP of RM1.95 (pegging the FY20 BVPS to 0.7x PBV). On that account, we upgrade our call to NEUTRAL.

Source: MIDF Research - 29 Aug 2019