• Maintain NEUTRAL and MYR1.59 TP, 1% upside with 3% FY24F (Mar) yield. IJM’s 9MFY23 (Mar) core earnings of MYR220.6m (+125% YoY) met our expectation but missed the Street estimate – accounting for 76% and 72% of full-year projections. The Mass Rapid Transit 3 (MRT3) project seems to be its sole catalyst in sight – with contract rollouts only expected in 2H23. As such, we believe that the stock is fairly valued. Our NEUTRAL stance is also premised on IJM’s MYR4.6bn current orderbook – which is a far cry from the MYR9.4bn level recorded at the end of FY18.

• Performance review. IJM generated MYR1.1bn (-13% YoY) and MYR76.4m (-18% YoY) in revenue and core profit during 3QFY23. On a segmental basis, the PBT for the construction arm plunged by 75.4% YoY due to lower construction activities as some major projects were completed in the previous financial year, whilst new projects secured are presently in the initial stages of progress. Meanwhile, the property segment recorded a PBT growth of 28.2% YoY in 3QFY23 to reach MYR78.6 (3QFY22: 61.3m), due to a wider profit margin derived from its current portfolio of development projects. Also, the industrial segment’s PBT jumped by more than 50% YoY, due to higher deliveries of piles and ready-mixed concrete coupled higher selling prices. In contrast, its infrastructure division saw a 53.4% YoY decline in PBT for 3QFY23 as the growth in Malaysia’s tollway traffic was negated by lower cargo throughput at Kuantan Port and maintenance costs at overseas highways, in India.

• Outlook. The group’s latest outstanding construction orderbook stood at MYR4.6bn (around three years’ visibility) after including the four job wins in FY23 worth MYR1.1bn vs its internal job replenishment target of MYR3bn. Moving forward, IJM targets to replenish the remainder of its new job target via the three bids it has put in for the MRT3 civil packages and a few highway projects in India. Nevertheless, current orderbook levels are way below the MYR9.4bn level at end-FY18. Aside from that, the property development project will be supported by its unbilled sales of c. MYR3.4bn as at end-3QFY23 (end-3QFY22: MYR2.3bn).

• Earnings and valuation. We make no changes to our estimates as results met expectations. As such, our SOP-derived TP remains at MYR1.59, after ascribing a 0% ESG premium based on our in-house ESG methodology. With the restructuring of toll rates for the Kajang-Seremban Highway (LEKAS) and Sungai Besi Highway (BESRAYA) being completed in late CY22, IJM is in advanced talks with the Government to restructure the New Pantai Expressway (likely to be finalised in 2QCY23) – with the impact to be NPV-neutral.

• Key downside risks include failure to secure contracts and a prolonged period of elevated material costs. The opposite constitutes upside risks.

Source: RHB Research - 24 Feb 2023