ALLIANCEDBS is maintaining its buy call for IJM Corp with a lower target price of RM2.20 from its previous RM2.50.
IJM’s first quarter ended June 30 (1Q21) earnings came below expectations, said Alliance at RM1.27 mil against RM59.4 mil previously, decreasing 98% year-on-year (y-o-y) while core its net loss stood at RM87 mil.
Its revenue also experienced a significant decrease to RM879.8 mil from last year’s RM1.54 bil.
AllianceDBS analyst Chong Tjen-San believes that IJM’s core business will help the company make a comeback.
In a note today, Chong said that IJM’s plantations division surprisingly registered a pretax profit of RM115 mil due to RM92 mil in unrealised forex gains.
Its fresh fruit bunches (FFB) production rose 19% y-o-y in 1Q21, while its crude palm oil (CPO) prices reached up to RM2,318 per tonne (versus RM1,921 per tonne in 1Q20).
However, Chong said three of IJM’s divisions were in the red – property, manufacturing and infrastructure.
“We deem this to be below our forecast and consensus estimate as the severity of the movement control order (MCO) impact appears to be deeper than expected,” he said.
Its property division registered a 1Q21 pretax loss of RM10 mil versus a pretax profit of RM46 mil in 1Q20 on the back of a 69% decline in 1Q21 revenue to RM146 mil due to the MCO.
Fortunately, 1Q21 property presales came in at RM320m while its target is RM800 mil to RM1 bil for FY21F on new launches of RM1.4 bil.
The company is also looking to monetise some RM400 mil worth of low yielding land bank.
IJM’s 1Q21 pretax loss for the infrastructure division was lesser at RM11 mil compared to its previous term of RM44 mil pretax profit, due to lower local and overseas tolled traffic volume caused by the MCO.
The manufacturing side still showed challenging numbers with a 1Q21 pretax loss of RM15 mil against its pretax profit of RM15 mil in 1Q20, due to lower product deliveries during the MCO period.
Meanwhile, its construction revenue and pretax profit for 1Q21 took a dive by 45% and 60% y-o-y to RM321 mil and RM16 mil respectively.
“The construction pretax margins declined 5% against last year’s 7%, below its broad guidance of margins of between 6% and 9% due to the MCO period. It also has an outstanding order book of RM5.5 bil as of June 30,” Chong said.
As the construction division awaits a two-year earnings visibility, Chong pointed out that IJM received the first portion of the Light City project, which will see the construction and development of an 11-storey mall and convention centre in George Town, Penang with a contract sum of RM864.7 mil.
The total construction value of the whole project (including hotels, residential condominiums and offices) is RM1.4 bil, with the second portion expected to be awarded by year end.
Going forward, AllianceDBS is cutting IJM Corp earnings forecast for next year by 30%.
“This is to factor in the poorer-than-expected 1Q21 results and our downward revisions for property sales, industry and infrastructure divisions profits,” Chong said.
“IJM’s valuation of 0.5x FY21F BV looks extremely cheap and is even trading at a lower rate from its recent March 2020 lows.”
He also added IJM’s recent underperformance was partly due to its removal from the MSCI Global Standard Indexes.
He expects the stock to be a key beneficiary of a revival in government spending that could be announced in Budget 2021.
IJM Corp’s share price stands at RM1.28 as of 10.33am, which is an increase of 4.07% and a market capitalisation of RM4.66 bil. – Aug 27, 2020
