Results Review

• IJM’s 1HFY17 net profit of RM279.4mn came in within expectations, accounting for 46.0% and 45.3% of our and street’s full-year estimates.

• YoY, 1HFY17 net profit of RM279.4mn was 13.9% lower despite higher revenue of 11.0% at RM2,799.5mn. The lower bottom line was due mainly to lower contribution from the property division(-61.0%).

• The property division recorded a 5.9% drop in revenue to RM652.7mn as a result of slower take up rate. 1H17 property margin plunged to 8.5% from 20.6% a year ago. The decline in margin was mainly attributable to lower sales and thinner gross margin as it shifted its focus to affordable properties which generate lower margin, and offered more incentives to buyers.

• On the other hand, construction recorded 32.0% increase in PBT as revenue jumped 83.3% to RM1,051.3mn. Construction margin normalised to 8.5% in 1HFY17 versus 12.0% recorded in the corresponding period last year. 1HFY16 construction margin was boosted by finalisation of accounts for some projects which had been completed. Meanwhile, the plantation division turned-around from a LBT of RM6.4mn in 1HFY16 to record a PBT of RM102.7mn in 1HFY17, supported by higher CPO prices (1H17: average RM2,588/MT vs 1H16: average RM2,105/MT)

• QoQ, 2QFY17 net profit surged 41.9% to RM163.9mn, spurred by improvement in all division except for infrastructure division which was negatively affected by the drop in throughput at Kuantan Port.

• IJM has declared a first interim dividend of 3.0sen/share, maintaining the same amount declared in the corresponding period last year.

Briefing Highlights

• IJM has a strong outstanding construction order book at RM8.2bn, including the 2 new jobs in 1HFY17 i.e. RM1.5bn Package V203 of MRT line 2 and RM176.4mn Kuantan Breakwater. The group targets to secure RM2bn to RM3bn of construction jobs in FY17.

• Being an experienced contractor in rail related projects such as electrified double track project and MRT project, the group is hopeful of securing works packages for Southern Double Track, LRT line 3 and East Coast Rail Line.

• IJM recorded property sales of RM700mn in 1HFY17. It has a sales target of RM1.4bn for FY17, matching the sales figure achieved in FY16. Unbilled sales stay unchanged at RM1.7bn. The property division will now focus more on affordable and landed properties which are more sellable in current market condition to underpin sales.

Impact

• Maintain.

Outlook

• While the property division is expected to face some headwinds in view of cautious property outlook, we expect to see stronger performance by the construction division going forward, supported by strong outstanding construction order book of about RM8.2bn. Besides, the favourable CPO price bodes well for the plantation division.

Valuation

• No change to our target price of RM3.23, based on unchanged CY17 PE multiples of 20x for the construction division, 16x for the plantation and infrastructure divisions, and 12x for the property and industrial division. Maintain SELL call on IJM as we think the stock has been fairly valued.

Source: TA Research - 29 Nov 2016