Results Review

• Excluding extraordinary items amounting to RM10.9mn, IJM’s 1QFY25 core net profit of RM97.8mn came in at 19.3% of our full-year estimate and 18.4% of the consensus forecast. We believe this result is in line with expectations, as we anticipate a stronger earnings performance in the 2HFY25 driven by higher revenue recognition from the construction and property development division.

• YoY, its 1QFY25 revenue and core net profit improved by 14.6% and 45.0%, respectively. This growth is largely driven by higher progress billing from the construction division and higher contribution from the port infrastructure division resulting from growing cargo throughput. Notably, the decrease in effective tax rate (-16.1ppt) has boosted the profitability as well.

• However, IJM’s revenue and core earnings declined by 20.2% and 51.2% QoQ, respectively. This decline was mainly attributed to slower progress on ongoing property development projects and a steep fall in contributions from toll infrastructure. The lower traffic volumes on certain overseas tollways, along with the absence of compensation income following the recent restructuring of local toll roads, further contributed to the weaker financial performance this quarter.

Impact

• No change to our FY25-27F earnings forecasts.

Outlook

• With the addition of RM561.8mn in new contracts secured during 2QFY25, the group’s total outstanding construction order book has reached RM7.0bn, equivalent to 4.2x FY24 construction revenue. The property division is also on solid footing, with unbilled sales totalling RM2.3bn. Moreover, the port division's outlook remains robust, driven by expected increases in bulk cargo volumes, such as bauxite and silica sand, and supported by improved handling capacity and operational efficiency. All in, the positive earnings outlook is set to remain strong and stable, bolstered by these key factors.

Valuation

• We reiterate our target price of RM4.00 based on unchanged 1.3x CY25 P/B and 3% ESG premium given our 4-star rating. We continue to like IJM for the following: (i) being the front-runners for large-scale infrastructure projects, i.e. Penang LRT and Nusantara civil servant housing project, (ii) growing its presence in the thriving data centre industry. Maintain Buy on the stock.

Source: TA Research - 29 Aug 2024