1HFY16 (Mar) results met expectations. Maintain BUY and earnings forecasts but raise TP by 11% to MYR3.77 (from MYR3.39, 14% upside). Its prospects are strong, underpinned by a record construction order backlog. Prime locations of its new property launches should mitigate against a collapse in sales despite headwinds in the property sector.

A good 1HFY16. IJM Corp (IJM) 1HFY16’s (Mar) MYR341.3m core net profit (excluding disposal and forex gains) came in within expectations,at 57%/49% of our full-year forecast and consensus estimates respectively. A 68% QoQ rebound in 2QFY16 property profit before tax (PBT) may suggest that the worst is over for its property earnings.

Construction to outshine property. IJM would be “selective” in bidding for new jobs, taking advantage of its sizeable outstanding construction orderbook of MYR7bn. It is keen on work packages of the Mass Rapid Transit (MRT) 2 and Light Rail Transit (LRT) 3, as well as the highervalue portions of the MYR5.3bn Sg Besi-Ulu Klang Expressway (SUKE)and MYR4.2bn Damansara-Shah Alam Highway (DASH). Meanwhile, it did not provide guidance for property sales in FY16, other than acknowledging that it is unlikely to surpass the MYR1.7bn achieved in FY15. It sold MYR650m worth of new properties in 1HFY16. It holds the view that the property market “would remain challenging for the next one year or so” due to credit tightening by the banks and weak consumer sentiment. However, it does see a bright spot in the affordable segment.

Forecasts. We maintain our earnings forecasts.

Risks. These include: i) new construction job wins in FY16F-18F falling short of our MYR2bn assumption, ii) delays and cost overruns arising from construction jobs, and iii) a sharp slowdown in the property market.

Maintain BUY. We like IJM Corp for its strong earnings visibility underpinned by a record construction order backlog of MYR7bn. Meanwhile, prime locations of its new property launches (largely Penang Island and the Klang Valley) should mitigate against a collapse in sales despite headwinds in the property sector. We raise our SOP-based TP by 11% to MYR3.77 (see Figure 3) to reflect a lower discount to RNAV of 10% (from 30%) for its property development business as we believe IJM Corp’s property sales have bottomed and are poised for a recovery.