• Maintain BUY and MYR2.47 TP, 17% upside, 3% yield. IJM Corp via a 60:40 JV with PESTECH International (PEST MK, NR) has been awarded a MYR176m job for the automated people mover (APM) or Aerotrain project at the Kuala Lumpur International Airport (KLIA) by Malaysia Airports (MAHB MK, BUY, TP: MYR8.66). Works are starting this month and are set for completion by 31 Mar 2025. This is IJM’s third transport-related job secured in FY24 (Mar) after the East Coast Rail Link spur line and Kuching Autonomous Rapid Transit project.

• Orderbook impact. Taking this latest job win worth MYR106m (IJM’s 60% share) into account, the group has secured MYR2.9bn worth of jobs for YTD-FY24 vs our FY24 job replenishment assumption of MYR4bn. Likewise, IJM’s orderbook has grown to MYR6.5bn. Profitability-wise, we pencil in an 8% PBT margin for the job.

• Further details. Additionally, the IJM-PESTECH JV is also under a consortium with the Alstom Transport Systems (Malaysia) (Alstom), which was the original equipment manufacturer for the same project. Alstom will take up the majority of the project’s work scope – as a project coordination lead – for a contract worth MYR456m after considering FX considerations, interest-holding costs, and remobilisation expenses.

• Recall: PESTECH initially secured the Aerotrain project for MYR743m in Dec 2021 before being terminated as a contractor in Aug 2023. The termination happened when the APM project was 37% completed, which translated into an outstanding work balance at MYR470m. Assuming the contract for Alstom is separate from the IJM-PESTECH JV, this could likely mean the cumulative job value of MYR176m and MYR456m awarded to the IJM-PESTECH JV and Alstom is c.30% higher than the Aerotrain project’s outstanding job value at the point of PESTECH’s contract termination.

• Our view. While IJM can be a reliable partner in executing the APM project given its rail credentials, Alstom’s presence in the consortium provides further reassurance for the delivery of the project (target completion: End 1Q25). The reason being is that the latter has a solid track record in previous APM installation works at airports such as Los Angeles International Airport, Dubai International Airport, King Abdulaziz International Airport in Jeddah, and Munich International Airport.

• There are no changes to our earnings estimates, as the latest job win is within our FY24 job replenishment assumptions. Hence our SOP-derived TP of MYR2.47, which bakes in a 2% ESG premium according to our ESG score of 3.1, is unchanged. The stock’s valuation is relatively undemanding – trading at 0.7x FY25 P/BV, -0.5SD below its 10-year mean. An upcoming catalyst includes being potentially involved in Indonesia’s new capital city’s civil servants housing project (worth c.MYR1bn).

• Key downside risks include a failure to maintain orderbook growth.

Source: RHB Securities Research - 18 Jan 2024