Investment Highlights

• We maintain our forecasts and fair value (FV) of RM1.19 based on “sum of parts” (SOP) (Exhibit 1), valuing IJM Corp’s construction business at 14x forward earnings. This is in line with our benchmark forward target P/E for large-cap construction stocks. There is no adjustment for ESG based on our 3-star rating (Exhibit 4). Maintain UNDERWEIGHT.

• IJM Corp has secured two construction contracts worth a total of RM327.6mil comprising:

1. Building infrastructure and public realm works in Tun Razak Exchange (TRX), KL (RM89.8mil over 14 months); and

2. The Mezzo residential tower in The Light City, Penang (RM237.8mil over 42 months).

• The latest job wins are the first during FY22F, boosting its outstanding construction order book by 6–7% to RM5.3bil which is only 50–60% of the RM9.4bil it carried three years ago during the peak of the previous construction cycle in 2018). No change to our forecasts that assume IJM Corp will secure RM1.5bil worth of new construction jobs annually in FY22–23F.

• The recent news on the MRT3 potentially commencing work in the second half of the year aside, the fact remains that the government will have very limited room for fiscal manoeuvre given the elevated national debt, weighed down further by the economic impact of the pandemic (including reduced tax and petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic.

• Similarly, we are cautious on IJM Corp’s other key businesses such as building material (due to the slowdown in the local construction sector), property (due to oversupply and a tight lending policy by the banks) and toll road (due to recurring losses at certain concessions). However, we do see bright spots in plantation (strong CPO prices) and ports (resilient throughput despite the pandemic).

• On a straight PE basis, IJM Corp’s valuations are unattractive at 17–30x forward earnings on muted prospects. An ROE of 2–4% is a strong indication that IJM has not realised its full earnings potential.

Source: AmInvest Research - 30 Apr 2021