IJM Corp 1H results below forecast, CGS-CIMB Research says


  • Analyst Reports
  • Wednesday, 27 Nov 2019

“Maintain a Hold recommendation as we continue to foresee limited near-term potential catalysts. ECRL contract wins are a key upside risk to our call. Weaker earnings are a key downside risk,” CGS-CIMB Research said.

KUALA LUMPUR: IJM CORPORATION BHD’s 1HFY3/20 results were below expectations, weighed by sustained associates’ losses and slow billings for new contracts, CGS-CIMB Equities Research said.

The research house said on Wednesday 1HFY20 core net profit grew strongly at 31.2% yoy but accounted for 37% of itsand 38% of consensus full-year forecasts.

“The results were below expectations, weighed by associates’ losses and slow billings for new contracts (though construction margins were supported by tail-end profits for completed projects in 2Q20).

“The 1H20 revenue growth of 13.2% yoy was driven by property development and infrastructure. Despite losses in associates, 1HFY20 core net profit grew by 31.2% yoy. The group declared a 2 sen interim DPS, which was within expectations, ” it said.

CGS-CIMB Research said the 1HFY20 construction revenue grew by 5% yoy due to slower billings from newly secured contracts (end-September outstanding order book of RM5.1bil).

Pretax profit was relatively flat yoy, supported by decent pretax margin of 7%. Notably, the infrastructure division (ports and toll concessions) booked 21% yoy growth in revenue and a strong 139% jump in pretax profit on the back of continued growth in cargo throughout (1H20: +59% yoy) at Kuantan Port.

The plantation division remains the biggest drag, albeit it reported lower pretax losses in 1HFY20, supported by forex gains.

The property development segment benefitted from stronger sales in 1H20, though margins contracted slightly. Earnings for the manufacturing and quarrying segment were boosted by better ASPs.

“During the results briefing, the group updated that it may not achieve its target to secure RM2bn new jobs in FY20 in view of design changes relating to a project with a JV partner.

“Despite the slight setback, it expects the launch of the East Coast Rail Line’s (ECRL) civil works subcontract tenders in the short-term, in addition to the RM2bn total value of tenders submitted at end-Sep.

“No major surprise in overseas tenders, with RM34bn worth of potential new tenders identified.

“We cut FY20-22F EPS as we factor in weaker associates and slower construction billings. We also cut our RNAV-based TP as we update the balance sheet items, roll over to end-CY20 and apply a higher 30% RNAV discount (20% before) to account for potential delays in job wins.

“Maintain a Hold recommendation as we continue to foresee limited near-term potential catalysts. ECRL contract wins are a key upside risk to our call. Weaker earnings are a key downside risk, ” CGS-CIMB Research said.


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