IJM Corporation’s 1HFY17 earnings garner mixed views
KUCHING: IJM Corporation Bhd’s (IJM) first half of financial year 2017 (1HFY17) earnings have garnered mixed views, with some analysts noting that the group’s construction division has never been stronger.
In a filing on Bursa Malaysia, IJM noted that its pre-tax profit for the current period to-date as of September 30, 2016 stood at RM433.88 million – a decrease of 33.1 per cent compared to the corresponding period of the preceding year.
This was mainly due to the non-recurrence of the one-off gain from the disposal of a 74 per cent equity interest in Jaipur-Mahua Tollway Private Limited totalling RM168.7 million that was recorded in the corresponding quarter of the preceding year.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), IJM’s 1HFY17 normalised profit after tax and minority interests (PATAMI) of RM279.4 million met its and consensus’ targets by 40.1 per cent and 45.3 per cent respectively.
“The deviation was mainly due to lower- than- expected earnings contribution from the infrastructure, and industrial segments whilst property earnings were still mired by weak demand,” MIDF Research said.
In contrast, IJM’s first half of 2017 ( 1H17) net profit of RM279 million was in line with AllianceDBS Research Sdn Bhd ( AllianceDBS Research) and consensus estimates.
AllianceDBS Research noted that IJM’s construction division has never been stronger.
“Its current orderbook of circa RM8.2 billion has surpassed its peak of RM6.7 billion in 2007 with the recent MRT V203 win worth RM1.47 billion,” the research house said.
“More importantly, the quality of its orderbook is solid now with all local jobs and anchored by the RM2.8 billion West Coast Expressway project and more recently MRT Line 2, V203 package
The deviation was mainly due to lower-than-expected earnings contribution from the infrastructure, and industrial segments whilst property earnings were still mired by weak demand.
worth RM1.47 billion.”
It added that this compares to 2007 when half of IJM’s orderbook was legacy overseas projects and raw material costs were also high.
Moving forward, AllianceDBS Research expected IJM to be more selective when bidding for new projects given IJM’s peak orderbook.
“The company is still eyeing various projects from the 11MP but will be more selective.
“For WCE, only package 2, 7 and 11 have yet to be awarded,” it said.
AllianceDBS Research noted that IJM will also try to free capacity by accelerating progress of works in order to capitalise on more flows.
“We also think it may get a decent portion of works for the Penang Integrated Transport project as and when it kicks off and a strong contender for LRT 3, Southern double tracking and ECRL,” the research house added.
On the privatisation of IJM Land which was completed in early April 2015, AllianceDBS Research noted that there was some dilution from the exercise given the new share issuance of 279 million shares would offset the minority interest savings.
It further noted that over the longer term, the privatisation will likely be accretive to IJM’s sum of parts (SOP) value given the group still owns well-located township landbank in the choice property states of Malaysia.
As for the group’s manufacturing division, AllianceDBS Research highlighted that IJM’s presence in the infrastructure space in Malaysia is two-fold - construction, and manufacturing via Industrial Concrete Products.
With a 50 per cent market share in the spun piles market, the research house expected the latter to also benefit from projects such as WCE and Kuantan Port.
On another note, AllianceDBS Research pointed out that IJM has raised the group’s stake in Scomi Group Bhd (Scomi) via converting the nominal value of RM110 million of convertible redeemable secured bonds.
The research house said that this brings the group’s stake to 24.4 per cent (RM0.365 per Scomi share) compared to its initial 7.7 per cent stake (RM0.33 per share) in late 2012.
In AllianceDBS Research’s view, the conversion of the bonds to equity does not represent IJM’s optimism in Scomi but one of lack of choice.
“We understand IJM is exploring various options for its oil and gas exposure but for now it will have to equity account for its 24.4 per cent stake,” the research house added.
As such, AllianceDBS Research maintained ‘hold’ on IJM with a target price of RM3.30 per share.
MIDF Research