• Keep BUY with MYR4.39 TP, 56% upside, 3% yield. IJM Corp’s 1HFY25 (Mar) core earnings of MYR232m (13% YoY) made up 46% of both our and Street’s full-year projections. We deem results to be in line as we expect a stronger 2HFY25 backed by stronger construction progress from ongoing jobs. We view IJM’s FY25F P/E of 19.6x to still have upside due to its leading industrial contractor role as data centres, warehouses, and factories make up around 35-40% of orderbook. Industrial jobs for IJM were absent during the 2017 upcycle (when it traded at c.17x).

• The PBT for the construction arm surged 88% YoY in 2QFY25 as jobs in hand have moved higher along the S-curve. Meanwhile, the property segment recorded a PBT decline of 60% YoY in 2QFY25, partly due to lower absence of land sales combined with FX losses from the Royal Mint Garden in the UK. Nonetheless, the coming quarters are expected to be backed by c.MYR3bn worth of GDV in planned launches for the next six months.

• The industrial segment saw a 7% YoY increase in PBT for 2QFY25 as higher operating efficiency mitigated the lower deliveries of piles, quarry, and mixed concrete products. The toll division saw a loss before tax of MYR1.1m in 2QFY25 (2QFY24 PBT: MYR11.9m) due to lower traffic volumes in overseas highways and absence of toll compensation. Likewise, the port division saw a 19% YoY PBT drop in 2QFY25 due to lower throughput.

• Job flows prospects. IJM secured MYR2.1bn worth of new jobs in FY25 YTD (FY24: MYR3.7bn) with an outstanding orderbook of MYR6.4bn. With the construction arm already showing commendable progress in 1HFY25, there are still some projects below the meaningful threshold which will ramp up in the coming quarters – namely data centre, semiconductor factories, and warehouse jobs. New projects to meet FY25’s MYR5bil new job win target may come from the civil servant housing project in Indonesia’s Nusantara capital city (c.MYR1bn), New Pantai Expressway extension (c.MYR1bn), plus factories and warehouses among others.

• IJM’s 50% stake acquisition in JRL Group Holdings Limited (JRL) is more towards reassessing the capital allocation of JRL, which has some nonincome generating property development assets which IJM may look to sell off to lighten the JRL’s balance sheet (8MFY2024 net gearing: 1.3x). Profitability is not a major concern as JRL has booked in foreseeable losses for certain projects over the past two years and hence, the worst is likely over.

• No changes to our earnings estimates as results are deemed in line with our expectations. We only impute JRL’s contribution once further due diligence is completed (target: Feb 2025). Hence, our SOP-derived MYR4.39 TP remains. Our TP also bakes in a 2% ESG premium based on ESG score of 3.1.

• Key downside risks include failure to secure contracts in a timely manner. 

Source: RHB Securities Research - 28 Nov 2024