Results Review

• IJM’s 9MFY17 net profit of RM417.8mn came in within expectations, accounting for 68.7% and 69.9% of our and street’s full-year estimates. We forecast a stronger final quarter as we expect higher progress for some of its major construction projects that were secured early last year.

• YoY, 9MFY17 net profit of RM417.8mn was 6.6% lower despite the cumulative 9MFY17 revenue was 11.0% higher at RM4,396.0mn. The bottom line was dragged mainly by weaker performance of property (- 39.1%) and infrastructure (-72.3%) divisions.

• The property PBT margin reduced by 6.7%-pts to 10.8% as a result of a shift in product mix with higher concentration on affordable housing properties. Meanwhile, the infrastructure division was negatively impacted by significant decrease in cargo throughput handled by Kuantan Port. The cargo throughput for the reporting quarter and YTD plunged to one third of the volume handled previously as it was adversely affected by the moratorium imposed on bauxite related activities.

• QoQ, despite 3QFY17 revenue was 7.4% higher at RM1,596.5mn, the net profit dropped 15.6% due to weaker performance of its construction, plantation and infrastructure divisions, as well as share of losses of associates which contributed positively in the immediate preceding quarter.

Impact

• As the estimated construction job wins of RM2.8bn in FY17 has exceeded our assumption of RM2.5bn, we adjust our FY17 construction order book replenishment assumption to RM2.8bn, and raise FY18 and FY19 earnings forecasts higher by 1.1% and 1.2% respectively.

Outlook

• We expect stronger performance on the construction division going forward, supported by strong outstanding construction order book of about RM8.7bn. Separately, the group announced that it has secured a design-and-build contract for the retail mall substructure and superstructure works, and associated infrastructure and landscaping works for parcel 1, phase 1 of Bukit Bintang City Centre Development. The contract amount is approximately RM1.16bn and the works are to be completed within 40 months.

• While we expect to see a decline in profitability of its property division in the current financial year, we anticipate the performance to stabilise going forward. This is backed by unbilled property sales of RM1.8bn, which was marginally higher than RM1.7bn a quarter ago

Valuation

• Subsequent to the earnings revision, we tweak IJM’s target price higher from RM3.23 to RM3.27, 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.

Source: TA Research - 24 Feb 2017