IJM: Robust Order Book Underpins Buy Rating Despite Earnings Miss

A leading investment bank has maintained its “BUY” recommendation for a prominent construction and infrastructure group, despite the company reporting a core net profit for the first quarter of financial year 2026 (1QFY26) that fell below both analyst and consensus expectations. The company’s core net profit declined 24.3% year-on-year to RM75.0 million, although revenue for the quarter saw a healthy increase of 23.4% year-on-year, reaching RM1.73 billion.

Performance Review

The weaker bottom-line performance was primarily attributed to reduced pre-tax profit contributions from the group’s property development and port divisions. The property segment experienced a 29.7% year-on-year decline in revenue and a 31.9% year-on-year drop in pre-tax profit, stemming from lower sales, delayed project launches, and reduced profit from joint ventures. Similarly, the infrastructure division’s revenue decreased by 16.9% year-on-year, with its pre-tax profit falling 14.7% year-on-year, largely due to lower cargo throughput in the port division.

In contrast, the construction and manufacturing & quarrying divisions demonstrated stronger revenue contributions. The manufacturing and quarrying segment notably improved its operating efficiency, leading to a 23.6% year-on-year rise in pre-tax profit. Construction pre-tax profit also rose 46.3% year-on-year due to higher work activities and a growing order book, though PBT margins for the segment saw a slight contraction to 3.6% from 4.4% in the prior year. The bank, however, anticipates a sequential improvement in construction margins as project progress advances.

Order Book and Future Outlook

Despite the current quarter’s earnings miss, the company’s future prospects remain positive, underpinned by an expanded outstanding order book of RM7.20 billion (RM12.9 billion including its share in joint ventures). This significant order book provides strong earnings visibility over the medium term. In FY26, the company has already secured RM2.90 billion in new jobs, fulfilling approximately 58% of its domestic replenishment target of RM3.0-5.0 billion. Key new wins include a RM1.40 billion data centre project and the formalisation of the RM1.40 billion New Pantai Expressway (NPE) extension.

The replenishment pipeline remains robust, with potential large-scale civil infrastructure projects like the Penang LRT, MRT3, and Penang International Airport expansion, alongside further data centre opportunities. Management also expects growth momentum in its overseas property portfolio, particularly with projects in London, and foresees cargo volume at its ports stabilising around 25 million tonnes for FY26. The NPE extension is scheduled to commence construction in 4QCY25, targeting completion in 4QCY29, further supporting long-term toll revenue and earnings visibility.

Investment Recommendation

Given the strong order book, robust earnings visibility, and a healthy pipeline of future projects, the investment bank has maintained its BUY rating. Although the target price has been slightly adjusted downwards to RM3.60 (from RM3.74 previously) for the company, based on an updated FY26F EPS of 14.8 sen pegged to a PER of 24.3x, the bank believes the company is well-positioned to capitalise on sector tailwinds and deliver long-term value to shareholders.