• U/G to BUY from Neutral, new MYR2.21 TP from MYR1.99, 22% upside. 1HFY24 (Mar) core earnings of MYR185.7m (+29% YoY) beat expectations, accounting for 59% and 52% of our and Street’s full-year estimates. The positive deviation came from a better-than-expected performance from IJM Corp’s property division. Its jobs replenishment trend has also improved and is in the sweet spot to take on upcoming major projects. Henceforth, we view the stock’s valuation as undemanding, as it is trading at a 0.6x FY25F P/BV, ie -1SD below its 10-year mean.

• On a segmental basis, the PBT for the construction arm dropped 40% YoY in 1HFY24 – partly due to newly secured projects that have yet to pick up pace. Meanwhile, the property segment recorded a PBT growth of >100% YoY during this period amid higher work progress at ongoing projects and the sale of two parcels of industrial land at Bandar Rimbayu. Separately, the industrial segment saw PBT jump 9% YoY on higher deliveries of piles and ready-mixed concrete. The infrastructure division saw a PBT of MYR102m (1HFY23 LBT: MYR14m) amid higher throughput at Kuantan Port (1HFY24: 12.7m tonnes vs 1HFY22: 11m tonnes) coupled with the absence of higher resurfacing costs for highways.

• Job flows. IJM secured MYR2.8bn worth of new jobs so far for FY24 (FY23 job wins: MYR1.5bn) – bringing its orderbook to MYR6.4bn vs MYR4.8bn as of end 2QFY23. Major job wins include the Immigration, Customs and Quarantine Complex for the Rapid Transit System Link (MYR1.3bn), East Coast Rail Link spurline connecting to Kuantan Port (MYR300m), and an ancillary building for Infineon Technologies in Kulim (MYR190m).The current orderbook level is also near end-FY19 levels of MYR6.7bn.

• Outlook. Looking ahead, IJM’s tenderbook – which we estimate to easily be above MYR15bn – comprises bids related to the three civil work packages for Mass Rapid Transit 3, New Pantai Expressway extension (estimated at MYR1bn and likely to be known by end FY24), and some warehouse and semiconductor facilities. As such, management expects to clinch new job wins of up to MYR4bn or even more for FY24. Aside from that, IJM guided that the property development arm will be supported by unbilled sales of c.MYR2.5bn as at end 2QFY24 (end 2QFY23: MYR3.1bn).

• We adjust FY24F-25F earnings upwards by 13-15% as we revise our FY24 job replenishment target to MYR4bn from MYR3bn and impute higher contributions from the property arm. As such, we arrive at a new SOPderived TP of MYR2.21 after ascribing a 0% ESG premium/discount based on our unchanged ESG score of 3.

• Catalysts include a faster-than-expected setting up of a JV to build a new factory for piles manufacturing in Sarawak and potential participation in Indonesia’s new capital in Nusantara – IJM is finalising its feasibility study on some works to be submitted to the Indonesian authorities. Key downside risks include failure to secure contracts and a prolonged period of elevated material costs. 

Source: RHB Securities Research - 1 Dec 2023