FY22 CNP of RM246m came above ours on stronger PBT margins from construction, property and industry division. Construction and property were lifted due to account finalisations of projects. YTD dividends of 21sen was spot on. FY22 construction replenishment and property sales were within targets while cargo throughputs were slightly below assumptions. On stronger industry margins, FY22E CNP increased marginally by 0.2%. Introduce FY24E CNP of RM332m. Downgrade to MP with an unchanged SoP-TP of RM1.90 given the rise in share price. We find IJM fairly valued at these levels.

Above ours but below consensus. 4QFY22 CNP* of RM132m led FY22 CNP to RM246m – above ours at 126% but below consensus at 87%. The positive deviation against ours stemmed from stronger PBT contributions from its construction, property and industry division mainly due to stronger PBT margins recorded within this quarter. Construction and property margins were lifted due to account finalisations while industry margins were stronger on cost reductions. 4.0 sen dividend declared – bringing YTD dividends declared to 21.0sen – spot on against our estimates.

QoQ, 4QFY22 CNP of RM132m improved 34% QoQ mainly from stronger contributions from construction, property and industry division due to margins expansion as explained above. Nonetheless, its infra (tolls & Kuantan Port) division’s PBT was down 48% due to weaker port throughputs of 5.1m tonne (-11% from 5.7m tonnes) coupled with major maintenance costs incurred for its toll roads. YoY, FY22 CNP of RM246m is down 33% mainly dragged down by weaker segmental PBT contributions from: (i) construction (-12%) due to lower revenue (-21%) arising from to movement restrictions, labour shortages and a lower outstanding book brought over (RM4.0b at start of FY22 vs. RM4.5b at start of FY21), (ii) property (-7%) from lower revenue (-2%), and (iii) Infra (-37%) from lower port throughputs of 22m tonnes (-18% from 26.8m tonnes). FY22 also saw less contribution from plantations (-61%) due to the divestment.

In FY22, IJM achieved construction replenishment of RM1.68b - within our target of RM1.5b but below managements RM2.0b target. For FY23E, management has guided replenishments worth RM3b which we believe hinges on the success of MRT3 contract. Other tenders the group are looking at includes hospitals and ECRL. We are less optimistic vs management and only impute in RM1.9b worth of FY23E replenishments as we are more conservative on the timing of contract rollouts.

Property sales within expectations. 4QFY22 property sales of RM0.4b led FY22 to RM2.4b – within our RM2.5b target (which we had revised up in the previous quarter). Unbilled sales stood at RM2.3b (1.5x cover). For FY23E, we target FY23E sales of RM1.7b – similar to managements target of RM1.8b backed by c.RM1.5b of launches.

Kuantan Port’s 4QFY22 cargo throughput of 5.1m tonnes led FY22 to 22m – slightly below our FY22E target of 24m tonnes (at 92%). We believe the lockdowns in China has led to lower throughputs by Alliance Steel. Our FY23E target is at 25m tonnes premised on China lifting their lockdowns by June-22. Meanwhile, IJM’s toll roads (Lekas, NPE, Besraya) could see restructuring in CY23 inline with Gamuda’s initiatives to divest their highways. (refer back for more)

Our view. IJM’s construction margins in subsequent quarters would likely be pressured by fixed rate ongoing jobs given the rise in input costs (registered 8% for FY22). Nonetheless, we take comfort that their Perennial job and recently secured Jendela Residence (cum. worth RM621m) have some form of cost pass through embedded into the job. Likewise, we believe property development would face margins pressures from industry inflation.

Earnings revision. After imputing in slightly better margins for its industry division, FY22E profits are lifted marginally (+0.2%) to RM310m. Introduce FY 24E earnings of RM332m. Given the rise in share price, we believe IJM is fairly valued. Hence, we downgrade to MP (from OP) on unchanged SoP-TP of RM1.90.

Source: Kenanga Research - 30 May 2022