Results Review

• IJM’s 1QFY20 net profit of RM59.4mn came in within our expectation but below consensus’ estimate, accounting for 17.2% and 14.7% of ours and street’s full-year estimate. We deem the results to be in line as we expect acceleration of construction activities and higher CPO prices in the remaining quarters of FY20.

• YoY, the group’s 1QFY20 net profit decreased by 5.3% to RM59.4mn despite the quarterly revenue was 6.9% higher at RM1,543.6mn. The weaker earnings were mainly dragged by higher taxation (48.4%). Operation wise, EBIT was 15.2% higher at RM184.0mn as all core divisions reported better PBT.

• QoQ, 1QFY20 net profit plunged 59.4% as all core divisions, except for industry division, recorded lower PBT. This was compounded by higher finance costs.

Impact

• Maintain FY20 to FY22 earnings forecasts.

Outlook

• Its construction outstanding order book dropped from RM7.8bn to RM6.1bn after termination of underground package for LRT3 previously awarded to IJM. The existing outstanding order book is expected to provide construction earnings visibility for the next 2 to 3 years.

• Its property division saw unbilled sales eased slightly from RM2.1bn to RM2.0bn.

• The operating environment for IJM is expected to be challenging given the cautious sentiment in property market and lower construction job opportunities. which are expected to negatively affect its construction, property and industry divisions.

• Downside risk could come from further delay in the completion of West Coast Expressway.

Valuation

• No change to our target price of RM2.18, based on unchanged 0.8xCY20 price to book ratio. Maintain Sell as we think the share price has fully reflected the value.

Source: TA Research - 29 Aug 2019