KUALA LUMPUR: Infrastructure-property group IJM Corp’s earnings for the nine months ended Dec 31,2019 were below CGS-CIMB Equities Research forecast and it maintained its Hold call with a lower target price of RM2.10.
The research house said on Wednesday IJM’s 9MFY20 core net profit made up 54% to 57% of its and Bloomberg consensus full-year forecasts.
“The results were below expectations, weighed down by sustained associate losses and higher tax rates, ” it said.
The 9MFY20 revenue grew 7% year-on-year (yoy), driven by its property development, plantation and infrastructure divisions.
The 9MFY20 core net profit was RM230m (excluding impairment of receivables and assets, gain on disposal of properties, and RM24.4m fair value loss on CPO pricing contracts), down 4.6% yoy, due to higher depreciation.
CGS-CIMB Research pointed out 9MFY20 construction revenue grew 4% yoy, in line with stronger billings, while pretax profit contracted 4% yoy, due to lower average project margins and higher finance cost.
Construction pretax margin in 9MFY20 was flat yoy at 7%. The infrastructure division’s (ports and toll concessions) revenue growth of 17% yoy was on the back of a 40% yoy increase in cargo throughput for its port operations and stronger toll concession revenue.
The plantation division’s turnaround to pretax profit in 9MFY20 was due to stronger commodity sales volume and higher CPO prices (higher FFB yield of +11%).
Property division’s pretax profit grew 11% yoy due to stronger JV profit and forex gains.
“In our view, the potential change in Malaysia's government resulting from the recent political developments would be negative for the overall construction sector if continuity, delays, and execution risks come into play in the medium term.
“IJM’s targeted RM2bn value of new jobs in 2020 could therefore be at risk. Also, the deferment of the Covid-19 related economic stimulus package has already poured cold water on the industry’s expectation of a faster rollout of government-related building and infra contracts. This scenario leaves the East Coast Rail Link (ECRL) as the only source of higher-value civil works tenders in 2HCY20F, which has been delayed since 4QCY19.
“We cut FY20-22F EPS by 9-11% to reflect weaker associates contribution and lower construction margins. Maintain Hold rating with a lower RNAV-based TP of RM2.10 as we update the balance sheet items (unchanged 30% RNAV discount).
“We continue to foresee limited near-term potential catalysts, with likely share price overhang from the weak results and political uncertainties. ECRL contract wins are a key upside risk to our call. Weaker earnings are a key downside risk, ” it said.
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