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IJM Corp’s H1 core earnings broadly in line, says CIMB Research

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by November 29, 2016 General

KUALA LUMPUR: CIMB Equities Research said IJM Corp’s annualised 1HFY17 core net profit made up 91% to 93% of its and consensus full-year forecasts.

It said on Tuesday the infrastructure-plantations and property group’s results were broadly in line as billings for the RM8.2bil order book kicks in.

“Property remains sluggish as margins were compressed due to lower pricing. Kuantan operations still offers longer term growth despite slump in Kuantan Port’s earnings.

“Job wins and new tender opportunities are potential catalysts. Our target price dips (to RM3.80 from RM3.95) as we roll over our valuation to end-CY18F,” it said. Key catalysts are emergence of new infra tenders and job wins while key downside risk is sustained weakness in property earnings.

CIMB Research said IJM’s management retained its RM2bil new order book target for FY17. So far, it has secured RM1.6bil domestic jobs including the latest package from MRT 2. 

The research house expected 2HFY17 to be stronger due to billings from its large construction order book and better plantation earnings. These should mitigate the decline in property development margins and port earnings in 1HFY17. 

Associate earnings (46%-owned Hexacon, S$200mil order book) improved substantially due to the weakening of the Ringgit versus the Singapore dollar.

Construction division (25% of earnings) was strong in 1HFY17, with a 83% on-year surge in revenue and 32% yoy growth in pretax profit, thanks to its RM8.2bil outstanding order book that mainly comprise the West Coast Expressway (WCE) and new deep water terminal at Kuantan Port.

The 1HFY17 pretax margin stood at a sustainable 10%, with limited downside as order book hits critical milestones. Steel intensive packages of current contracts have largely priced-in higher steel cost (RM1,800 a tonne year-to-date).

“As property outlook remains tough, management targets flat total property sales in FY17, similar to FY16’s RM1.4bil. 1HFY17 property sales were RM700mil, relatively unchanged on-quarter, and focused on affordable properties, primarily of landed products. 

“Management has lined up RM600m worth of launches in 2HFY17, to come from Penang, Seremban 2, Bandar Rimbayu, and Austin township in Johor. Johor’s high-rise market remains less favourable compared to the landed segment outside of Johor,” it said.

The 68% decline in Kuantan Port’s (60%-owned) throughput in 1H17 was mainly due to the moratorium on Bauxite mining. But management explained that the flipside here is that its operations in Kuantan should offer longer-term potential, both in construction and port earnings. 

Phase 2 of the new deep water terminal is set to translate to RM1bil in new orders, which will raise capacity from 26 million FWT to 52 million FWT. This terminal complements the group’s 51%-owned Malaysia-China Kuantan Industrial Park.

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