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HLIB lowers target price on IJM Corp after earnings forecast cut

KUALA LUMPUR (March 9): Hong Leong Investment Bank Bhd (HLIB) has lowered its target price on IJM Corp Bhd to RM1.93 from RM1.94 previously, after cutting earnings forecast amid widening losses from the construction group’s associates.

In a note today, HLIB head of research Jeremy Goh said the earnings forecasts for FY20, FY21 and FY22 were cut by 6.6%, 18.1% and 17.2% respectively, after taking into account the higher losses from associates, offset by higher replenishment assumptions for FY21 and potential wins from the East Coast Rail Link and Penang Light City projects.

However, the research house had upgraded its call on IJM to “hold” from “sell”, following the decline in the company’s share price after the previous downgrade.

The share of losses from associates stem from the highway operations, with the group reporting losses of RM27.3 million in 3QFY20, bringing cumulative losses for the first nine months of FY20 to RM73.8 million.

Several sections of the West Coast Expressway (WCE) were opened and commenced tolling in January and March this year, while sections 1, 2, 3 and 6 (Selangor stretch) are slated for 2021.

“In the near term, we anticipate widening loss contribution as significant volume pickup is unlikely until the opening of the Selangor stretch,” said Goh.

Following a recent meeting with IJM, Goh said the group’s orderbook stands at RM4.5 billion, down from RM5.1 billion as at the second quarter of FY20.

He said the Penang Light City project is currently being finalised, with an award amounting to RM650 million to RM700 million could materialise in the first quarter of FY21.

For the property segment, IJM said it is on track to achieve RM1.6 billion targeted sales for FY20 after hitting RM1.2 billion for the first nine months of FY20, with projects like Shah Alam 2, Seremban 2 and Rimbayu driving sales to date.

IJM is planning to launch RM1.4 billion worth of projects in the first half of 2020, anchored by Rimbayu and Riana Dutamas.

Meanwhile, the Royal Mint project in London has been handed over to buyers with a take-up rate of 90%.

“For the property segment, pre-tax profit margins re-anticipated to come in comfortably above 10% moving forward,” said Goh.

IJM fell six sen or 3.09% to RM1.88, giving a market capitalisation of RM6.84 billion.

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