KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its Buy call on IJM Corp but with a lower sum-of-parts based target price of RM2.65 from RM3.52 earlier to reflect the construction sector’s structural de-rating.
The research house said on Thursday it had reduced its FY19-20 construction orderbook win assumptions to RM1bil from RM2bil.
“We also ascribed a lower PE multiple of 12 times to the construction segment (from 17 times), acknowledging that the sector is experiencing a structural de-rating. Our target price implies 16.9 times FY20F PE,” it said.
UOB Kay Hian Research said IJM's share price was well below its assessed trough valuation.
“Although we have tweaked downwards our trough valuation to RM2.33 from a preliminary RM2.44, as we adjust down the hypothetical expropriation value of its tolled highways, IJM’s current share price remains well below the trough valuation,” it said.
It pointed out the results disappointed even after stripping out exceptional items, partly prompting earnings forecast cuts of 17% and 11% for FY19-20.
“Below expectations, with net profit coming in at RM11.2mil (-91% on-quarter, -92% on-year), on revenues of RM1,398.6mil (-11% on-quarter, -16% on-year) for 4QFY18.
“Excluding forex losses amounting to RM17.3m, IJM Corporation’s (IJM) core PATMI for the quarter stood at RM28.5m (-76% on-quarter, -79% on-year).
“Cumulatively, FY18 core PATMI of RM396.6m (reflecting 16-17% on-year drop in core PBT), represents 83% of our and consensus forecasts respectively.
“The earnings disappointment reflects mainly steeper losses from associates, and partly poor performances across the board,” it said.
UOB Kay Hian Research said while there remains uncertainty on the government’s decision on tolled expressways and the outlook for the construction sector has been dampened by the government’s cancelation of mega projects, the shares are oversold after plunging 40% year-to-date.
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