• Maintain NEUTRAL and MYR1.59 TP, 2% upside. IJM Corp’s FY23 (Mar) core earnings of MYR277m (+71% YoY) met our estimates – accounting for 96% of our full year projections. The Mass Rapid Transit 3 (MRT3) project seems to be the sole major job in sight, hence, we think that the stock is fairly valued – trading near its 5-year mean P/E. Our call is also premised on its MYR4.5bn current orderbook – a far cry from the MYR9.4bn level seen at end-FY18.

• IJM generated a core profit of MYR50.5m (-21%YoY) during 4QFY23. On a segmental basis, PBT for the construction segment dropped 20% YoY due to lower construction activities as some major projects were completed in the previous financial year, whilst new projects secured are presently in their initial stages of progress. Meanwhile, the property segment recorded a PBT growth of >50% YoY in 4QFY23 to reach MYR225m (4QFY22: MYR20m) amid higher margins from the current portfolio of development projects. Likewise, the industrial segment saw PBT jump by 43% YoY due to higher deliveries of piles and ready-mixed concrete coupled higher selling prices. In contrast, its infrastructure segment saw a core LBT of MYR17m (4QFY22 core PBT: MYR12.6m) after excluding a one-off impairment from the West Coast Expressway in 4QFY23 as the growth in Malaysian toll road traffic was negated by lower throughput at Kuantan Port and maintenance costs at overseas highways in India.

• Outlook. The group’s latest outstanding construction orderbook stood at MYR4.5bn (around four years’ visibility) after including the five job wins in FY23 worth MYR1.5bn vs its internal job replenishment target of MYR3bn. Moving forward, IJM targets to replenish the remainder of the new job target via the three bids it has put for the MRT3 civil packages and a few highway projects in India. Nevertheless, current orderbook levels are way below the MYR9.4bn level at end-FY18. Aside from that, the property development project will be supported by its unbilled sales of c.MYR3bn as at end 4QFY23 (end 4QFY22: MYR2.3bn).

• Earnings and valuation. No changes to our estimates as results met expectations. We also introduce our FY26F earnings with a job replenishment target of MYR2bn. As such, our SOP-derived TP of MYR1.59 is maintained after ascribing a 0% ESG premium based on our unchanged ESG score of 3.0. Rerating catalysts include securing contracts in East Malaysia (could be as high as MYR2bn) in total and flood mitigation related projects. Key downside risks include failure to secure contracts and a prolonged period of elevated material costs. The opposite constitutes upside risks.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 30 May 2023