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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 21 Jan 2021, 11:57 AM

 

IJM Corporation Berhad - Replenishing Orderbook

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Media reports have it that the Group has secured a contract from Laksana Positif Sdn Bhd for the construction of a 34-storey hotel and office tower at The Light City in Gelugor, Penang valued at RM314.8m. This represents the Group’s second win for FY21, maintaining its healthy orderbook of c. RM5.4bn. We keep our forecasts unchanged nonetheless, having imputed this in our orderbook replenishment assumption of ~RM1.3bn for FY21. We are expecting more jobs to be awarded in CY21, riding on economic recovery post Covid-19 pandemic with more infrastructure-related works to be rolled out, amongst which will include the ECRL project. The Group will announce its 2QFY21 results later today. We anticipate it will record positive earnings with improvement on a QoQ basis, supported by the progressive completion of its outstanding orderbook. 1QFY21 was affected by the lockdowns and movement restrictions globally. Our Neutral call with SOTPderived TP of RM1.60 is maintained.

  • The contract comprises a 500-room luxurious four-star hotel and 90 office suites in various built-up sizes and layout options, with a net lettable area of 166,000 sq ft. The construction work is scheduled to commence in Jan 2021 and to be completed within 45 months in Oct 2024. Laksana Positif SB is wholly owned subsidiary of IJM Perennial Development SB which is a 50:50 joint venture company between IJM RE SB (a wholly-owned subsidiary of the Company) and Perennial Penang Pte. Ltd. (an indirect wholly-owned subsidiary of Perennial Real Estate Holdings Limited, a company incorporated and listed in Singapore).
  • Replenishing orderbook. This represents the Group’s second win for FY21 with cumulative value of RM1.2bn. With this contract, IJM’s outstanding orderbook is expected to remain healthy at RM5.4bn, translating to 2.6x of its FY20 construction revenue. Assuming a pre-tax profit margin of 7%, this project is expected to contribute c. RM22m to be spread over construction period. We maintain our forecast nonetheless, having imputed this in our orderbook replenishment assumption of RM1.3bn for FY21.
  • While this project will undoubtedly maintain its orderbook at healthy RM5bn+ levels, progress billings for existing projects remain as a key risk given the operating environment currently especially with the recent spike in new Covid-19 cases. Execution of projects will be a lot slower with the enforcement of stricter operating procedure at worksites.

Source: PublicInvest Research - 25 Nov 2020

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IJM 1.63 -0.04 (2.40%) 3,245,000 

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