Results Review

• Stripping out extraordinary items totalling RM70.7mn, IJM’s 1HFY25 core earnings of RM231.8mn were in line with expectations, accounting for 45.8% of our full-year estimates and 45.7% of the consensus forecast.

• The group declared a first interim dividend of 2.0sen/share, maintaining the same amount declared in the corresponding period last year.

• YoY, 1HFY25 revenue increased by 8.8%, primarily driven by a robust 60.9% growth in the construction division. However, this growth was partially offset by declines in the property division (-10.3%), the manufacturing and quarrying division (-14.2%), and the concessionaire assets (-4.9%). These declines were attributed to: (i) a higher gain from the disposal of two parcels of industrial land in 1HFY24, (ii) reduced sales tonnage delivered, and (iii) lower traffic volumes coupled with the absence of compensation following the restructuring of local toll roads. Despite these setbacks, core earnings improved by 11.6%, supported by a lower effective tax rate (-7.9 ppt).

• QoQ, 2QFY25 revenue and core earnings rose by 8.0% and 37.0%, respectively. This significant growth was supported by accelerated work progress in both the property and construction divisions.

Impact

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

Briefing Highlights

• To recap, IJM secured RM2.1bn in new contracts during 1HFY25, lifting its total outstanding construction order book to RM6.5bn as of end-Sept 2024, equivalent to 3.8x FY24 construction revenue. Meanwhile, the property division remains robust, with unbilled sales amounting to RM2.3bn.

• Looking ahead, we anticipate stronger earnings performance in 2HFY25, driven by higher contributions from the acceleration of three deferred construction projects, all currently progressing at less than 10%. Additionally, management’s FY25 order book replenish target of RM5bn is expected to underpin further growth. Key potential wins include: (i) the RM1.5bn New Pantai Elevated Highway extension, (ii) RM1bn in construction jobs from Nusantara, and (iii) up to three additional data centre projects, along with semiconductor and warehouse developments. These contracts are anticipated to be finalised by the end of FY25.

• In a notable strategic move, IJM has proposed acquiring a 50% stake in UKbased contractor JRL Group Holdings Ltd (JRL). This acquisition, structured as a 60:40 joint venture with Lite Bell Consolidated Sdn Bhd (a partner of Royal Mint project in UK), grants IJM an effective 30% stake in JRL. The acquisition is aimed at tapping into JRL’s supply chain strengths within the UK construction sector while complementing IJM’s ongoing investments and operations in the region.

• Post-acquisition, IJM plans to address JRL’s financial health, which currently shows a net gearing ratio of 1.3x as of 8MFY24. , IJM intends to alleviate JRL’s financial strain by divesting selected development projects, thereby improving capital management and enhancing returns.

• The acquisition is currently undergoing due diligence and is expected to be finalised by 1QCY25. As such, it is unlikely to have a material impact on IJM’s FY25 bottom line. Looking ahead, IJM aims to reposition JRL for sustainable long-term growth, with revenue target of approximately GBP1.2bn by 2030 and an improved PBT margin of 4.5% (from the current 3%).

Valuation

• We maintain 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 - 28 Nov 2024